Regulators of Shanghai's emissions trading scheme should make emitters pay a fixed price for CO2 permits, with the biggest polluters paying the most, according to a U.N.-backed research group study.
The study by the UNEP-Tongji Institute for Environment and Sustainable Development recommended the dirtiest facilities covered by the Shanghai scheme should pay nearly twice for the right to emit as cleaner companies pay.
“Companies would have to pay different fixed rates compared to a benchmark price set by the government,” said Liao Zhenliang, one of the authors of the study.
A fixed price in the Shanghai's scheme, set to launch next year, would stop carbon prices from spiking and hurting economic growth or, as in the EU, plummeting and rendering the scheme ineffective in encouraging low carbon investment.
Under the proposal, emitters would have to pay a fixed price for somewhere up to 95 percent of the permits they need, although the study did not say how many permits regulators should sell and how many to hand out for free.
The remaining 5 percent of permits would be auctioned by the government.
The study did not propose a price, but said the cleanest companies should pay 80 percent of the government-set fixed price, and the least efficient plants as much as 150 percent of that price.
If local officials adopt the UNEP-Tongji proposals, the Shanghai ETS would cover around 50 percent of the city’s annual 240 million tonnes of CO2.
The scheme would include the power sector, manufacturing and the chemicals industry and impose CO2 targets on facilities that consume more than 5,000 tonnes of standard coal per year.
Liao told Reuters Point Carbon that the scheme should be limited to carbon dioxide in the early years and not regulate other greenhouse gases.
Banking of permits would be allowed after 2015, while borrowing from future permit allocations would be permanently banned, he said.
The study suggested that the Shanghai Energy and Environment Exchange should host trading of permits under the scheme.
There is currently no timetable for when the Shanghai government might announce the final rules and regulations of the ETS.