Emissions Trading Across China: Incorporating Hong Kong and Macau into an Urgently Needed Air Pollution Control Regime Under 'One Country, Two Systems'

Abstract

China’s status as the world’s largest overall emitter of sulfur dioxide pollution carries with it serious hazards to human and ecosystem health. The National People’s Congress began to address this in 2000 when it promulgated national SO2 emissions caps. By 2010, SO2 emissions across the Mainland were supposed to stabilize at preset baselines. Rather than decreasing, however, emissions are reaching alarmingly new levels. China needs a more powerful mechanism for achieving the desired results, such as an emissions trading scheme (ETS). The United States’ Acid Rain Program provides an almost ideal model, but a unique variable is added when Hong Kong and Macau, the two Special Administrative Regions, are considered. Each maintains exclusive jurisdiction over its own environmental policy under the constitutional matrix of “one country, two systems.” Thus, a Chinese ETS incorporating the SARs would essentially operate in an international context. Hong Kong and neighboring Guangdong Province are negotiating a regional, transboundary ETS which could provide solutions, but the present conceptualization is lacking in several critical regards and will prove ineffective. This article is novel in considering how to meaningfully encompass the SARs in an effective ETS framework. After an introduction of the issues, Part II establishes why ETS is necessary for China. Part III introduces the framework for environmental legislation in mainland China and the SARs, including upon the constitutional relationship between the SARs and other local governments in mainland China. Part IV will discuss the history of Chinese ETS pilot programs with focus upon the experience in Jiangsu Province. Part V analyzes the practical difficulties and shortcomings which have hampered other leading ETS regimes, proving the need for centralized authority. Part VI evaluates current prospects for regional and national ETS based upon an analysis of existing regulatory frameworks. Finally, Part VII concludes by recapping the recommendations, especially the need for a powerful supranational compliance and enforcement mechanism to manage long-term, transboundary environmental policy.

Keywords: cap and trade, transborder, transboundary, SO2, sulfur dioxide, China, Hong Kong, Macau, Air Pollution