smokestack.jpgThe Carbon Expo Asia conference, held recently in Beijing, showed the growing maturity of the fledgling carbon trading market and China's desire, as host nation, to steal some of the limelight.

Even though China is not required to abide by the Kyoto protocol to reduce its own emissions, it used the event to showcase one of its most successful exports — greenhouse gas emission reductions.

At the event, the World Bank unveiled two deals involving China's fledgling renewable energy sector.

The deals involve a wind farm project in Inner Mongolia, which will eliminate 240,000 tons of CO2 emissions a year, and a smaller hydro project in Hubei, which will eliminate 72,560 tons of CO2 emissions when it is operating in 2008.

In similar vein, the UK government announced two Chinese wind farms would be the first beneficiaries of its decision to allow non-UK countries participate in the UK carbon market. The two wind farm projects, both in Jinlin province, will eliminate almost 110,000 tons of CO2 emissions annually.

Under the Kyoto protocol, businesses in signatory countries can purchase spare carbon emission reduction (CER) credits from projects or companies that release greenhouse gases below their authorised levels. They can also meet their emission reduction targets by buying reductions from developing countries like China using the so-called clean development mechanism (CDM).

The global carbon market grew to nearly $22bn in the first nine months of 2006, more than doubling in value over the $11bn recorded last year. China sold 60% of the world's CER credits last year and has become a favoured location for carbon reduction projects.

For example, in one landmark deal, brokered by the World Bank and involving western investors, China stands to get €775m from a project to capture and destroy the greenhouse gas emitted by two Chinese chemicals companies.

The Kyoto protocol covers more than 160 countries globally and over 55% of the world's greenhouse gas emissions. When it was signed, back in 1997, China was not the economic force that it is today and, like India, it was not required to reduce emissions. So most attention centred on the foot-dragging attitude of the US, which signed the protocol but never ratified it.

Ten years on, however, the picture looks different. Based on its current trajectory, China could overtake the US as the largest producer of CO2 emissions before 2010, according to the International Energy Agency. That has led to growing calls from the international community for China to play a more active role as responsible global citizen.

Australia, another Kyoto signatory that did not ratify the protocol, now says that it would make little difference whether Australia does or not because of the huge rise in emissions from China.

At the conference, Beijing voiced its desire for a new and improved follow-on agreement when the Kyoto protocol expires in 2012. The same soothing noises will be heard at this week's UN conference on climate change, currently being held in Nairobi.

But 2012 is is a long way off and China knows it.

In the meantime, China has the best of the both worlds. It can carry on emitting CO2 and other greenhouse gases at alarming rates, while also take advantage of Kyoto mechanisms such as CERs and CDMs to clean up its worst-offending industries and subsidise the development of its renewable energy sector.


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