3 questions to Joseph Dellatte

Published on 29 January 2020

You are now working on Asian ETSs but you have decided to carry out a research stay in Paris within the Chair. Can you tell us more about your approach?

There are many reasons. I am doing my PhD in an genuine multidisciplinary and Asian context. My approach is political-economic and I have a great freedom of tools, methods and collaboration. This visiting stay at the Climate Economic Chair gives me the opportunity to meet other researchers working on climate change related topics in a European context and with different approaches from mine. The fact that we are gathered together in the same place provides a great emulation conducive to exchange of ideas. Secondly, from an academic point of view, there is a great complementarity between my own research on the practical application of Linking in East Asia and some theoretical research carried out at CEC. I see this as a longer-term collaboration that will allow me, for example, to apply the outcomes of some specific CEC researches with the Asian case study I am interested in, notably on restriction tools in Linking.

The design of the Asian ETSs may differ substantially from the EU-ETS. What lessons can be drawn from these experiences for the European Union?

Asian realities already diverge significantly. Currently, only South Korea has a functioning national ETS that effectively prices carbon. China has several functional provincial-level pilot markets since 2013-2014 that have been the first testing ground for the ever-postponed launch of the country’s national ETS (CN ETS). Japan, for its part, does not yet have a real carbon pricing tool at the national level, apart from a very low carbon tax on gas, but has two regional ETSs in place in the Greater Tokyo area (Tokyo and Saitama ETS). These two regional ETSs have also been linked and now form an interesting case study for the future of inter-jurisdictional collaboration on carbon pricing.

From a design and environmental ambition point of view, the Asian and European situations genuinely differ. In contrast to Europe, Korea and China are following a course aimed at mitigating the intensity of their emissions, which implies a market price that does not reflect an absolute constraint to reduce emissions at the national level. In practice, in China, this is characterized by an ETS cap that is annually indexed to GDP growth by the regulator, indexation that is supposed to end in 2030, when the country shows its willingness to peak its emissions and apply an annual absolute regression of its cap. Another major challenge on the Chinese side is the lack of data reliability, which makes it extremely complex to develop consistent and transparent control mechanisms (MRV) and to choose an appropriate permit allocation methodology. The scale of the CN ETS is currently only comparable to the EU-ETS and is expected to exceed it quickly. Politically, the development of the Chinese market has relied on aid and support from the European Union. This can be seen as a clear signal for potential future medium to long-term linkage discussions between the two jurisdictions.

Is the Chinese ETS primarily a political signal, or do you also feel that it is an effective response to the expectations of reducing greenhouse gas emissions in that country?

It answers a twofold problem faced by the Chinese authorities. First, to occupy a positive political and media space as  ” solutions maker” left unoccupied by the USA on the climate diplomatic stage. Second, to develop a tool to increase energy efficiency at the lowest cost possible without altering the government’s growth plan. It is no coincidence that the CN ETS was first developed by the powerful National Development and Reform Commission (NDRC – the central body of the Chinese government in charge of economic policies) and not by the Ministry of the Environment. The effort is therefore not focused on reducing total emissions as in the other ETSs developed so far, but on the capacity to increase the energy efficiency per unit of production of entities covered by the CN ETS. In practice, in the CN ETS as in the pilots, the market price signal is largely in the hands of the regulator via annual ex post adjustments and a whole battery of regulatory interventions permitted by the design. The Chinese market thus fully matches the commitments taken by China in its national contribution to the Paris Agreement to peak emissions in 2030 and, by then, to improve energy efficiency.