Power and Carbon Sovereignty in a Non-Traditional Capitalist State: Discourses of Carbon Trading in China

Abstract

Carbon markets emerge in the liberal-capitalist world as a product of a coalition of financial, political, and environmental actors that have common interests in turning GHG emissions reductions into a new commodity.1 Paterson argues that carbon markets have gained prominence because they have enabled the formation of such a powerful political coalition and enabled businesses to imagine a cycle of profits from these markets.2 Carbon markets flourish because they allow capital to accumulate as GHG emissions are mitigated.This neoliberal model, supported by the discourse of economic rationalism, encounters difficulties in explaining why the idea of an emissions trading scheme (ETS) has found political energy in China. Several ETS trials are currently operating in this country and building the basis for a national ETS, which may potentially become one of the world’s largest carbon markets. However, China is a non-traditional capitalist economy where the vestiges of administrative rationalism persist as an influential discourse within the state. While the economic discourse prevailed over administrative rationalism in the developed world during the 1980s, in China the struggle is still being played out. Non-state financial and environmental actors in China are not politically influential, and state actors, rather than a finance-led coalition, dominate domestic carbon markets.3 Moreover, the decision to introduce ETSs was made against unfavorable conditions: substantial economic uncertainties, strong resistance to capping emissions, weak domestic demand, and incomplete legal and regulatory systems. These constraints offered limited room for imagining cycles of economic gain.China’s attempt to run ETSs is shaped by its prior experience with carbon markets, notably those that are linked to the Clean Development Mechanism (CDM). Carbon markets allow for the transfer of capital between disparate locations to manage future outcomes, i.e., emissions that would have been produced. The acquired emissions reductions can be taken as an “offset” for actual emissions, subject to specific requirements and standards that define their quality. These requirements and standards are unilaterally determined by supranational institutions, foreign government authorities, international environmental organizations, and business groups. Most carbon offsets or credits are purchased by organizations based in developed countries, and transactions occur via international exchanges in Europe and the US. Thus, these emissions reductions are legally defined, credited, and traded outside the sovereign spaces—mostly developing countries—in which they are materially produced and maintained. Discretionary power in determining what counts as emissions reductions is transferred across scale and space to the global spheres where governing authorities and corporate interests rest.Consequently, even China finds itself a powerless player in these carbon markets. China supplies most of the emissions reductions under the CDM, but does not have parallel influence on the terms by which these reductions are defined, credited, and traded. This issue has attracted attention since international carbon prices collapsed and market environments became uncertain starting around 2008. Trading terms deteriorated as demand contracted, raising issues about compromising national interests and sovereignty associated with selling off the rights to emit GHGs abroad. Concerns over the loss of power to the Western world resurfaced within China, as discussed in this paper.Our core argument is that these sentiments nurture collective desires for creating a Chinese national carbon market with proprietary rules and standards, in an attempt to redeem the displaced power. The linkage can be discerned in discursive terms more easily than logical ones. As shown later in this paper, key actors shift between two levels of reality without addressing the logical incoherence between their own arguments, conflating, for example, the construction of domestic markets with the CDM market, which is situated in a different regulatory context. This study adopts a discourse-analytic approach and advances new insights into how ETS has been seen as a legitimate policy option in places like China, where neoliberal systems do not prevail. The objective is to ascertain the political and economic considerations underlying the nationwide carbon-trading program.In this article, we open up debates about carbon market development in non-liberal capitalist states. We seek to show that concerns over power displacement from the sovereign state have shaped the discursive context in which ETSs have gained popularity in China and become a defining element of its carbon trading discourse. We demonstrate how notions of power come into play and show that advocates within the country adhere to a storyline about power displacement.This research aims to characterize the carbon trading discourse of China through systematic discourse analysis. Evidence is solicited from the Chinese print media. Reported opinion statements are grouped into analytic categories to build a political discourse of carbon trading. We explain how this discourse is embedded in the larger development narrative through the intuitive storyline of market power, which is tied to a concern about “carbon sovereignty.”A number of authors have described carbon trading as a capitalist experiment for which the state harnesses market-based instruments for GHG mitigation to the advantage of big businesses and financiers.4 Carbon markets emerge in a neoliberal political-economic context within which tendencies for privatization, commodification, and marketization of environmental goods and services prevail.5 These markets provide opportunities both for curbing GHG emissions, and for capital accumulation through extracting profits from the production, financing, and trading of carbon emission permits.6 The neoliberal solution to the problem of climate change is to create new sites for profitable investment and economic growth. This process is dominated by big businesses supported by governments at various levels. Paterson, for example, suggests that the success of carbon trading “lies in part in its capacity to identify such a sector—finance—that can grow precisely because of climate policy.”7Continuing economic growth, however, is ultimately a source of climate change. Advocating the market approach for dealing with climate change is understood as a tool for re-legitimizing a capitalist system that has come under attack. As Paterson argues, it is “a result of a search by parts of finance to re-legitimize its dominance and practices.”8 To the extent to which the traditional modes of capital accumulation are environmentally unsustainable, the ideal strategy is to create another form of capital that is causally linked to sustainable outcomes. Neoliberal regimes attempt to ease the tension between accumulation and legitimacy by diverting some benefits from capital accumulation to “legitimate” activities, such as decarbonization.9These neoliberal processes of capital accumulation and re-legitimization occur in a transitioning political economy in which decarbonization becomes increasingly profitable, and. market actors are able to discern and capture the residual benefits from trading in emission reductions. Climate governance is also increasingly devolved to supranational institutions and non-state actors so that the norms of governance are determined in part by parties external to the state. The prospects for profits and non-state involvement are determined by legal provisions specified in international treaties such as the Kyoto Protocol and by regulatory regimes such as the EU’s ETS. Carbon markets are seen as a new avenue for economic growth operating by re-organizing the role and power of the state.10The broader political economic context within which China’s carbon markets gain force varies from those of the established liberal-capitalist regimes. China does not have a long history of neoliberalization of environmental policy, and political power remains centralized in Beijing. The neoliberal logic that drives the creation of carbon markets is not fully compatible with its authoritative tradition of climate change governance.11 Energy and financial industries do not play a dominant role in the rapid development of domestic carbon markets in China.12 The fact that the Chinese ETS operates within the structures of a non-traditional market economy and is governed by an authoritative state raises many important questions about the forms and implications of climate capitalism in such an incompletely neoliberalized economy.Since 2005, China has been involved in carbon trading as an exporter of certified emission reductions (CERs) under the CDM, by which developed countries provide financial support to projects that cut or avoid greenhouse gas emissions in developing countries and acquire CERs to offset their own emissions and meet their net reduction targets. China is the largest supplier of CERs, currently hosting 50 percent of the projects registered under the CDM and producing 61 percent of the expected CERs from registered projects.13Towards the end of 2010, the Chinese central government declared its ambition to establish a national ETS to curtail its growing GHG output. In 2011, the National Development and Reform Commission (NDRC) established seven ETS pilot sites across the country, including two provinces (Guangdong and Hubei) and five cities (Beijing, Shanghai, Tianjin, Chongqing, and Shenzhen), with the short-term goal of establishing a trans-regional ETS as a precursor to a national scheme. The ETS program is widely regarded as a key milestone in the history of Chinese climate policy.Yet the Chinese government had been reluctant to introduce a national ETS and used to “deliberately avoid” considering the option of emissions trading.14 Instead, carbon taxes were the first preference, listed by the ministry of finance as a promising approach. Absolute emission caps impose physical constraints on economic growth, which may be why government officials saw an ETS as politically unattractive.15 Also, ETSs require an effective enforcement and punishment system for regulating polluters, as well as an accurate and consistent system for measuring, monitoring, reporting, and verifying industrial emissions. Both systems are far from complete in China.16The timing of China’s entry into this market is also unusual. Carbon trading entered an uncertain period in 2009, when the world economy stumbled and the Copenhagen conference failed to produce substantive agreements on post-2012 Kyoto commitments. As market demand diminished and prospects of the Kyoto Protocol became uncertain, international CER buyers hesitated to bid. From the first quarter of 2011, CER prices fell nearly €12 down to record lows of less than €1 in December 2012. Exporting CDM credits proved far less profitable, and primary sellers encountered more stringent requirements from buyers. With a large number of CERs on market, China was severely affected.China’s ETS program is being created in unfavorable circumstances. Political and institutional constraints make carbon taxes a more reasonable option than ETS, and there seems to be little rationale for adopting a national ETS at this time. The scheme receives support, however, from the Chinese leadership’s narrative that an ETS may prevent power displacement across scales. We sought evidence for this narrative by undertaking a discourse analysis.Discourse analysis allows us to understand how ideas, concepts, and narratives about a particular issue intersect, clash, and align. Discourse analysis is essential to understand why state actors in China have come to see carbon trading and national development as compatible.Changes in the terms by which aspects of nature and nature–human relations are understood, represented, and discussed have led to joint problem-solving agreements and actions in politics and society at large.17 These terms, shared by multiple actors, form the basis of discourse. According to Dryzek:A discourse is a shared way of apprehending the world. Embedded in language, it enables those who subscribe to it to interpret bits of information and put them together into coherent stories or accounts … Each discourse rests on assumptions, judgments, and contentions that provide the basic terms for analysis, debates, agreements, and disagreements.18Through discourses, actors give meaning to physical and social realities. These shared meanings, in turn, shape the ways in which discourses are deconstructed and reconstructed.Discourses allow re-interpretation and rhetorical transformation of realities and policy priorities in ways beyond that of science and factual evidence.19 The production and re-production of shared terms for analysis and debate are pivotal to the formation of a “discourse coalition” that can interpret the divergent framings of an issue to identify a cognitive or discursive structure common to different parties, suggesting that they belong together.20 According to Hajer, the political power of the textual or linguistic representation of a discourse is not derived from its consistency, but from its “multi-interpretability.” Realities may become multi-interpretable when they are effectively expressed through “storylines,” defined as “narratives on social reality through which elements from many different domains are combined,” providing “actors with a set of symbolic references that suggest a common understanding.”21 Multi-interpretable storylines help actors coordinate their diverging understandings, connect existing interpretations, and form coalitions in the absence of shared knowledge or beliefs.Hajer, for example, has shown that the storyline of acid rain enabled re-definition of the air pollution problem in Europe.22 The death of fish and trees used to be understood as a natural phenomenon. Through the storyline, acid rain was discursively linked to human damage to the environment. This storyline successfully represented air pollution as a threat to nature, rather than a localized industrial and/or health issue. It facilitated communication linked to previously unrelated discourses (namely, environmental degradation and industrial inefficiency). A new discourse—ecological modernization—emerged because actors now saw environmental degradation as a problem that could be dealt with by reorganizing inefficient industrial practice. This understanding led to the formation of a discourse coalition.The discourse approach recognizes that actors have vague, contradictory, and unstable normative positions and preferences. New discourses allow them to re-present conflicting ideas as part of a storyline to achieve a particular political or social objective. The emphasis on discursive space and appearance justifies using a discourse approach for the present study, for several reasons.First, carbon trading is a contested concept in China. It poses ideological and institutional challenges to authorities caught in the discursive struggle between economic and administrative rationalities. Official documents do not explain why an ETS policy is adopted when carbon taxes clearly have many advantages. The tension, however, can be reconciled in a discursive space by re-presenting the contested issues in new terms and in appropriate political language. Second, official policy documents in China are typically short and vague. Detailed policy proposals or legislative papers that document the reasons for adopting carbon trading and how it would operate are generally not publicly available. The policy does not exist in the form of substantive and visible policy papers, government websites, or media statements. Most people, including stakeholders, do not really see the policy system, which exists only in a discursive space.23 This is more so in China, where there is no clear distinction between political rhetoric and policy prescriptions.These constraints suggest that an inquiry into what (suddenly) makes carbon trading an attractive policy option cannot fully rely on a survey of objective evidence, such as official announcements and published policy guidelines. Instead, this article investigates how concerned actors, including government officials and industry stakeholders, comprehend and discuss carbon trading.John Dryzek’s discourse-analytic framework is used to systematically identify the terms in which an environmental issue is expressed, represented, and debated.24 The framework has two levels of analysis. The primary level consists of four political discourse elements: basic entities (the entities whose existence is recognized or constructed), natural relationships (the relationships between different entities that are deemed to be natural or unnatural), agents and their motives, and metaphors.25 The secondary level of analysis applies to the study of utterances regarding a political issue. Political discourses always embody certain claims about the world. The types of claims made—definitive, designative, evaluative, and advocative—can further distinguish between political expressions.26We largely adopted this bi-dimensional analytical schema but omitted metaphors. The use of metaphors in Chinese newspapers is occasional and sporadic, and our initial research managed to identify only a handful. We replaced metaphors with perceptions of “capacity for change,” defined as the perceived ability of an action or a process to make relationships between entities or actors more natural or unnatural. This refers to the perceptions of what factors either preclude or facilitate a preferred change. “Capacity for change” concerns practical solutions and emphasizes functional qualities, for example with respect to the role of direct regulation, market mechanisms, and political negotiations.Our analytical schema generated a four-by-four matrix for sampling. We created a matrix table by reducing each political discourse element to four categories according to the type of claim (Table 1). Statements for analysis were solicited and allotted to one or two of the sixteen cells.We sought to ascertain how carbon trading is understood, represented, and discussed as a policy concept. Our sampling strategy focused on the arguments and knowledge claims of the concerned actors. Discourse analysis requires a broad-based sampling strategy to cover a wide range of reported views expressed by actors from different sectors and various levels. Thus, we included sources from mainstream national newspapers as well as tabloid-style local, industrial, and specialist newspapers. We paid particular attention to those statements indicating specific discourse elements, such as the nature of markets and the relationships between nations.We accessed news articles via a professional Chinese digital database known as the China National Knowledge Infrastructure (CNKI). The CNKI makes full texts of a variety of digitalized publications available for subscribers, including 592 different newspapers ranging from national to local, sector-based, and thematic publications. Only print media published in Mainland China and written in Chinese were included in the initial search.We searched for news articles using four Chinese keywords that are directly related to carbon trading, namely, “carbon trading (tàn jiāo yì),” “carbon emission trading (tàn pái fàng jiāo yì),” “carbon market (tàn shì chng),” and “carbon emission market. (tàn pái fàng shì chng).” Only articles published from July 1, 2008, to June 30, 2013, were included. The start date was chosen because in mid-2008 several local carbon exchanges emerged that indicated where in China the domestic market was emerging.27 The end date marked the start of pilot ETSs. The selected search period therefore captured the transition from initial market development to institutionalization. These procedures returned 703 news articles.To avoid missing information, we ran an additional search using a popular Chinese online search engine called Baidu. This yielded an additional 58 articles, which were reduced to 46 by screening out duplicate reports. The sample was further sorted to remove irrelevant topics such as carbon market activities of other countries and descriptive industrial briefs. As a result 143 articles were excluded, leaving a pool of 606.To extract a manageable number of articles (about 30 percent) from the pool, we sorted the articles chronologically, starting from the oldest, selecting every third or fourth article. Thus we shortlisted 179 articles for detailed textual analysis. Each was scrutinized using the discourse-analytic framework. Statements that directly refer to carbon trading or markets in China and report arguments or claims of concerned actors that indicate a discourse element were coded into relevant analytic categories (as listed in Table 1). Our search mainly focused on reported interviews and discussions involving key actors such as industry representatives, government officials, journalists, and academics.We outline our research results by presenting representative statements entered into each analytic account that denote the arguments and claims of actors concerned. The first numbers in brackets below (e.g., #21) refer to the article numbers listed in Appendix, and the two-digit codes that follow them (e.g., A1) are the cell identifiers in Table 1.Our analysis revealed that actors frequently raise the issue of market power as a concern. The policy implications of carbon trading are often couched in terms of various forms of “power” that are tied to the prospects for national development. Speaking on carbon trading, a government official from the NDRC suggested:Securing the power of setting the rules-of-the-game means securing the power of maintaining national development. (#21 A1)This view underlies the framework in which carbon trading is being developed. The carbon trading discourse portrays an image of national interests being compromised by the collapse of international carbon prices over the last few years.Currently the biggest challenge for [the Chinese] domestic carbon markets is the steep decline in trading prices. (#11 A2)Falling prices pose a major challenge because China currently lacks “pricing power” (dìng jià quán) in existing carbon markets:National interests are severely damaged because our country does not have pricing power in the international carbon markets. (#92 A3)Pricing power can be broadly understood as the ability to negotiate favorable terms of trade (related to the economic concept of price-making). Currently, the terms by which carbon emissions are traded (such as compliance regulations, pricing rules, and carbon credits verification standards) are predominantly determined by industrialized economies. China does not have much capacity for determining these regulations, rules, and standards, and consequently only has a price-taker role. The limited capacity contributes to the problem of declining pricing power:If China doesn’t set up [carbon] exchanges, we will lose the pricing power in carbon trading and remain in a passive role. (#19 A3)Because we don’t have our own trading system, we can’t get the pricing power. (#108 A2)In some cases, the pricing power is expressed in another form—the “power of saying” (huà y quán)—which literally means the ability to have a say in the carbon markets:If you [i.e., China] don’t speak and act, you are likely to lose the power of saying. In the future, you can only stay at the lower end of the market, without the rights of participating, decision-making and pricing. (#22 A3)These power-related keywords are repeated in a number of news articles over time to describe a pressing problem. They are consistently linked to national development interests and articulated as a supporting argument for creating a domestic carbon market. This is clearest in statements that explicitly mention power and carbon markets.Concerns over the loss of pricing power have prompted moves to set up a national carbon market that would enable China to influence the terms of trade in the international carbon markets. The following quotes indicate a perceived causal relationship between domestic carbon market and pricing power:China should speed up the process of establishing carbon exchanges in order to protect the interests of domestic markets. This will also strengthen our negotiating power. (#1 A4)China has a huge emissions market but not pricing power … that’s why provinces compete to set up their own carbon markets. (#6 A2)The lagging-behind carbon markets … could affect our country’s ability to secure pricing power and gain initiative in the international carbon markets. (#130 A3)The loss of pricing power and the power of saying is a pragmatic reason for China to build up carbon markets. (#144 A2)There is a widespread belief that building a stronger domestic market is essential for China to strengthen its international market power. What, however, are the sources of this market power? In carbon markets, verified emissions reductions are a form of capital. In theory, the more emissions a country produces and the greater the potential for turning them into a tradable commodity, the greater the market share and the larger the economic gains the country could potentially secure. It is believed that large volumes of GHG emissions could support the burgeoning carbon market and provide new energy to domestic and global economies:Currently China emissions reductions account for one-third of the total volume in the global market. By 2012, China will take up 41 percent in all U.N. indicators. China has great prospects for carbon trading in the future international markets. (#72 A3)This suggests that carbon trading is seen as beneficial because it can turn GHG emissions into economic opportunities. The high level of Chinese GHG emissions is seen as a potential for augmenting its market share, thus illustrating the perversity of externalities, where something that is bad for the environment is good for the economy.Concerned actors have articulated a two-level logical relationship between the market, power, and national development: establishing a functioning domestic carbon market is seen as a way to strengthen pricing power, which is important for protecting national interests in the international carbon markets. Through the discursive window of carbon trading, China’s large volumes of GHG emissions are viewed as a powerful market driver that can create a huge market share and contribute to its market power. These notions of power crucially enable an extended interpretation of carbon trading in broader political-economic terms, particularly with regards to development rights and wider economic influence, both of which are closely linked to national interests. The linkage between power and development is more clearly reflected in the assumptions about (un)natural relationships between developed and developing countries.Building a domestic carbon market is important for development because international carbon market conditions perpetuate what is seen as an unnatural relationship that precludes the realization of development benefits by China. The international context in which carbon trading is discussed portrays the view of a competitive relationship between China and the developed world:Global carbon trading has become a scramble like “dancing with the wolf.” The functioning of [our] carbon trading system directly affects our country’s destiny in the fierce competition for global carbon trades. (#167 B1)Although the prospects for carbon trading are good, there are no gains for China, whose current domestic market remains uncompetitive:The [Chinese] markets are chaotic; entities are fragmented; negotiating power is weak. China’s carbon markets fall well behind the international carbon markets. (#1 B3)Some of these hurdles stem from China’s own institutional failures; others are produced by unequal global power structures. The conviction that China has suffered from the hegemony of the Western world is firmly embedded in the arguments for strengthening engagement in carbon trading. A key unnatural aspect is reflected in the passive role of China under the CDM:China can’t get the power of saying as developed countries set the rules of the CDM. (#62 B2)China accounts for 60 percent of the market share under the CDM. That’s why developed countries impose more restrictions on China. (#100 B3)What is regarded as unnatural is China’s carbon trading opportunities being unduly compromised by its perceived hegemonic rivals in the global context. The lack of competitiveness and excessive restrictions suggest an unwelcome power imbalance between carbon trading countries. Concerns over this power imbalance have motivated attempts to redeem “carbon sovereignty.”The narrative of power imbalance provides discursive resources for a dialectic struggle around what we call “carbon sovereignty.” Although China has become a major global economy, it paradoxically sees itself as powerless in the competitive carbon market. This perceived powerlessness contradicts the knowledge that China has risen to become the dominant supplier in these markets:Although China has become the largest seller, we don’t have pricing power in this market. (#23 B2)Our country is the largest CO2 producer and emitter. We should have a say on prices. (#50 B4)China has become the largest supplier of verified emissions reduction in primary market, but remains a “price-powerless” country. (#62 B1)This indicates a dominance–powerlessness paradox. In international carbon markets, China currently dominates production but not governance. Chinese actors are frustrated by the lack of material influence, which they believe should have come naturally with the ri