By Julian Wong Oct.7.2008
In: capital and finance, climate change

Tianjin to Win the Environmental Exchange Race?

This is an environmental “Tale of Two Cities.”  Two weeks ago, The Green Leap Forward (GLF) attended two separate events introducing two separate emissions rights exchanges in two separate cities. The first was an event hosted by the China Carbon Forum on Sept 23 in the capital, featuring as its main event a presentation introducing the newly formed China Beijing Environmental Exchange (CBEEX or 北京环境交易所) by CBEEX’s Deputy General Manager, Mr. Mei Dewen. Two days later on Sept 25, GLF took the half hour high speed rail eastwards to Tianjin to attend the opening ceremony (pictured below) of the Tianjin Climate Exchange (TCX or 天津排放权交易所) , followed by an extravagant lunch banquet and an afternoon symposium on emissions trading.

The China Beijing Environmental Exchange

Neither exchange have commenced operations as yet. On paper, both exchanges have very similar business scopes. according to official literature distributed at the event, CBEEX, which officially opened on August 6, plans to facilitate transactions in the following areas,:

  1. Energy conservation and environmental protection technologies
  2. Energy conservation quotas
  3. Pollution rights, including sulphur dioxide (SO2) and chemical oxygen demand (COD).
  4. Carbon emission credits

However, a browse through their website (Chinese only) reveals on the left panel vague references to “ecological service rights transactions” (生态服务权益交易) and “renewable resource transactions” (可再生资源交易) without providing much details.

Noteworthy from the list above is #1, which suggests some facilitation of technology transfer. As this blog as pointed out in the last Green Hops post (under “High Level Climate Change Talks”) , technology transfer is a hot topic. One of the big criticisms of the clean development mechanism is that, despite being an intended goal, it has been an ineffective tool in facilitating clean technology transfer. Just how CBEEX plans to facilitate technology transfer is, like many other aspects of its operations, currently unclear. Currently, however, there are two links on the left pane of the CBEEX that lead to sub-directories that list links to solicitations from clean technology developers. These clean technology developers invariably appear to be Chinese entities and are seeking, in the case of one link (“环境技术及设备交易” or “environmental technology and equipment transactions”), technology development and business cooperation or, in the case of another link (“环境类股权资产交易” or “environmental equity assets transactions” ), external financing or investments (private equity and venture capital firms, take note!). Thus, it seems that the kind of technology transfer contemplated here is not the “developed-country-to-developing-country” sort which international climate change policy makers have being trying to push, but rather technology development cooperation within China, or even, ironically, technology transfer from China to other countries (although the lack of English language descriptions might suggest otherwise)!

The Tianjin Climate Exchange

The opening of the TCX represents an about turn since the news report last year that negotiations between the founding shareholders broke down due to opposition of the domestic partners to allow the Chicago Climate Exchange to take a minority stake in TCX. It seems the domestic partners have relented–CNPC Assets Management Co., an affiliate of China National Petroleum Corp. (which is also the parent company of PetroChina) will own 53%, together with the Tianjin Property Rights Exchange at 22%, while CCX will have a 25% stake. According to official literature, TCX will facilitate trades in:

  1. SO2 emissions
  2. COD
  3. Other emissions which are subject to mandatory emissions and/or energy reduction requirements of PRC

The third category is an obvious catchall for any other types of tradable emission rights. Even thought CO2 is not explicitly listed, one has to imagine that CO2 falls under the catchall category given the involvement and expertise of the Chicago Climate Exchange as a minority shareholder in TCX. CCX, after all, initiated the voluntary carbon market in the U.S. and is actively involved in European carbon trading through the European Trading Scheme.

So What’s the Deal?

The burning question is how both CBEX and TCX, and indeed other emissions exchanges proposed in Shanghai Hunan, Hong Kong and Singapore, will coexist, cooperate or compete with each other. Is this a competitive or friendly race to be first? My polling of various attendees at both events proved inconclusive. Mr. Mei of CBEEX evaded my direct question on this point.

An attendee of the TCX opening event relayed to me a conspiracy theory that CBEEX is little more than a face-saving front because in reality, according to the theory, Beijing has in fact been left out of the “exchange game”, while other cities like Shanghai, Shenzhen, Hong Kong, and now Tianjin, boast of financial or environmental exchanges. I will admit that this theory, if true, would be rather bizarre considering the amount of resources that appear to have gone into creating CBEEX. On paper, at least, the governmental backing of the all-powerful NDRC and Ministry of Environmental Protection would appear to give CBEEX the air of legitimacy. On the other hand, the involvement (and in fact, investment) of a credible and established foreign partner such as the CCX and the asset management arm of one of the biggest energy companies in the world such as CNPC weigh more heavily in TCX’s favor, if I were forced to pick an outright winner between the two. But that’s leaving out the proposed Shanghai, Hunan, Hong Kong and Singapore exchanges

Silver Lining

If readers of this blog can be optimistic of something, it would not necessarily be the fact that the trading of emission rights can bring about what economists dub a “pareto efficient” allocation of emission reductions, a result that rests largely on the theoretical assumption that transaction costs are nil or negligible. In reality, however, transaction costs are not negligible. In fact, the establishment and administration of an emissions exchange is downright complicated and costly. Instead, the one unambiguously positive thing about the establishment of an emissions exchange is that, as CCX founder, CEO and Chairman, Dr. Richard Sandor (pictured right), also dubbed the “father of carbon trading,” said at the TCX emissions trading symposium, it forces emitters to measure their emissions. Bringing to light that amount of actual extent of pollution is the first and necessary step to reducing pollution effectively.

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  1. The Green Leap Forward 绿跃进 » Blog Archive » China Carbon Forum 2008 Review Oct.20.2008@1:58 pm Reply

    [...] in Singapore, Hong Kong and various other cities in China to establish carbon exchanges (see prior post). An international effort to integrate all these disparate exchanges into a harmonized global [...]

  2. The Green Leap Forward 绿跃进 » Carbon trading, taxes and putting the cart before the horse Oct.13.2009@1:12 am Reply

    [...] complete non-event.  CBEEX is just one of a handful of private entities (see previous post “Tianjin to Win the Environmental Exchange Race?“) seeking to be launch pilot pollution credit trading platforms.  The truth is that they are [...]

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