Hong Kong as “laboratory” of China in carbon trading

Dr Richard Sandor, who widely known as the ‘father of carbon trading’ says Hong Kong could be the ‘laboratory of all of China’ given its enormous human capital and financial background.

Influenced by Ronald Coase who raised the concept of externalities – costs or benefit of economic activity borne by others not involved in the economic activity, such as pollution. Coase argued that given the transaction cost is low enough, a trade was possible for the private parities to bargain an efficient solution without government intervention.

In the case of climate change, the solution is carbon trading. “The purpose of markets is to put up a price. I don’t know of anything else that alters behaviour more than price,” Sandor reinforced in a public lecture at the University of Hong Kong. In other words, Sandor thinks that with carbon trading market, the price of carbon emission right will be discovered. This will give people motivation to reduce the carbon emission.

To apply the concept in the Mainland China market, China has opened pilot carbon trading markets in seven cities since 2013. And the government has pledged to slash the carbon intensity by 65 to 70 per cent by 2030 using 2005 as the base. To achieve this goal, an effective carbon market can be a powerful tool. And it is the timing for Hong Kong to exhibit some leadership in the carbon trading market, with a nationwide cap and trade programme.

Hong Kong can take the lead in carbon trading, US economist argues