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Toward a low carbon Hong Kong: A proposal from the institutional perspective Lennon H.T. Choy, Winky K.O. Ho * , Stephen W.K. Mak Department of Building and Real Estate, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong Keywords: Low carbon Hong Kong Electricity Institutional changes abstract Climate change adversely affects peoples life in many aspects all over the world. While it is a natural phenomenon, it is also induced by human activities that include the use of fossil fuels for combustion in daily life, emitting greenhouse gases in the atmosphere. As the balance of climate system has been disturbed, it is not surprising that extreme weather events, such as very hot days and ooding, occur more frequently and more intensive than ever. Hong Kong, as an international city, should shoulder its responsibility of controlling the emissions of greenhouse gases. Using the Hong Kong annual data from 1990 to 2008, this article estimates a simple econometric model to demonstrate that electricity consumption is the major factor contributing to the variations in CO 2 emissions. To complement the traditional ways to reduce CO 2 emissions by restricting the consumption of electricity and other fuel, we propose two alternative methods to reduce electricity consumption by: (1) charging the supply of electricity at progressive rates for commercial and industrial end-users; and (2) setting up a cap and trade market for greenhouse gas emissions by local electricity companies. Both methods offer incentives to electricity users to self-discipline themselves to restrict the demand for electricity, hence reducing CO 2 emissions in turn. Ó 2011 Elsevier Ltd. All rights reserved. Introduction Climate change adversely affects peoples life in many aspects all over the world, such as the supply of food and fresh water, temperature and health condition. In Hong Kong, meteorological observations reveal that average temperature and annual rain- fall were on the rise in the past century. Average annual temperature in Hong Kong was 23.1 C from 1980 through 1999, and this gure is forecasted to increase by 4.8 C during the period between 2090 and 2099, with more hot nights and very hot days in summer 1 and less cold days in winter (Council for Sustainable Development, 2011). 2 Average annual rainfall in Hong Kong was 2324 mm during the period between 1980 and 1999, and this gure is forecasted to increase by 11%, and would reach the level of 2572 mm during the period between 2090 and 2099. The uctuations in year-to-year rainfall are also expected to be greater, resulting in more extremely wet and more extremely dry years. 3 While climate change is a natural phenomenon, it is also induced by human activities that include the use of fossil fuels such as coal, natural gas and liquid fuel for combustion in daily life, emitting greenhouse gases (GHGs) in the atmosphere. There exist signicant linkages among climate change, urban development and human settlement. OECD (2008) suggests that approximately 50% of the worlds population live in cities, and this gure is increasing, reaching 60% by 2030. Cities also contribute a large proportion of GDP, and are the cores of economic activity for both developed and developing countries. Against this background, cities do not only provide jobs and places for economic activities, but also social, environmental and cultural services (Bicknell, Dodman, & Satterthwaite, 2009). Hallegatte, Henriet, and Corfee-Morlot (2011) point out that cities are strongly integrated systems that face multiple stresses and rapid changes, in which transport, energy, water infrastruc- tures have to function altogether. The persistent concentration of population and economic activity makes cities particularly vulnerable to climate change as built infrastructure are located there; and as they comprise roughly 60e80% of world energy use * Corresponding author. Tel.: þ852 3400 2792; fax: þ852 2356 2218. E-mail addresses: [email protected] (L.H.T. Choy), bswinky@ inet.polyu.edu.hk (W.K.O. Ho), [email protected] (S.W.K. Mak). 1 A hot night is dened as a day with a minimum temperature of 28 C at night- time while a hot day is dened as a day with a minimum temperature of 33 C in day-time. 2 A cold day is dened as a day with a maximum temperature of 12 C at day- time. 3 An extremely wet year is dened as a year with annual rainfall more than 3187 mm while an extremely dry year is dened as a year with annual rainfall less than 1282 mm. Contents lists available at SciVerse ScienceDirect Habitat International journal homepage: www.elsevier.com/locate/habitatint 0197-3975/$ e see front matter Ó 2011 Elsevier Ltd. All rights reserved. doi:10.1016/j.habitatint.2011.12.011 Habitat International 37 (2013) 124e129

Toward a low carbon Hong Kong: A proposal from the institutional perspective

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Habitat International 37 (2013) 124e129

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Habitat International

journal homepage: www.elsevier .com/locate/habitat int

Toward a low carbon Hong Kong: A proposal from the institutional perspective

Lennon H.T. Choy, Winky K.O. Ho*, Stephen W.K. MakDepartment of Building and Real Estate, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong

Keywords:Low carbon Hong KongElectricityInstitutional changes

* Corresponding author. Tel.: þ852 3400 2792; faxE-mail addresses: [email protected]

inet.polyu.edu.hk (W.K.O. Ho), [email protected] A hot night is defined as a day with a minimum t

time while a hot day is defined as a day with a minimday-time.

2 A cold day is defined as a day with a maximumtime.

0197-3975/$ e see front matter � 2011 Elsevier Ltd.doi:10.1016/j.habitatint.2011.12.011

a b s t r a c t

Climate change adversely affects people’s life in many aspects all over the world. While it is a naturalphenomenon, it is also induced by human activities that include the use of fossil fuels for combustion indaily life, emitting greenhouse gases in the atmosphere. As the balance of climate system has beendisturbed, it is not surprising that extreme weather events, such as very hot days and flooding, occurmore frequently and more intensive than ever. Hong Kong, as an international city, should shoulder itsresponsibility of controlling the emissions of greenhouse gases. Using the Hong Kong annual data from1990 to 2008, this article estimates a simple econometric model to demonstrate that electricityconsumption is the major factor contributing to the variations in CO2 emissions. To complement thetraditional ways to reduce CO2 emissions by restricting the consumption of electricity and other fuel, wepropose two alternative methods to reduce electricity consumption by: (1) charging the supply ofelectricity at progressive rates for commercial and industrial end-users; and (2) setting up a cap andtrade market for greenhouse gas emissions by local electricity companies. Both methods offer incentivesto electricity users to self-discipline themselves to restrict the demand for electricity, hence reducing CO2

emissions in turn.� 2011 Elsevier Ltd. All rights reserved.

Introduction

Climate change adversely affects people’s life in many aspectsall over the world, such as the supply of food and fresh water,temperature and health condition. In Hong Kong, meteorologicalobservations reveal that average temperature and annual rain-fall were on the rise in the past century. Average annualtemperature in Hong Kong was 23.1 �C from 1980 through 1999,and this figure is forecasted to increase by 4.8 �C during theperiod between 2090 and 2099, with more hot nights and veryhot days in summer1 and less cold days in winter (Council forSustainable Development, 2011).2 Average annual rainfall inHong Kong was 2324 mm during the period between 1980 and1999, and this figure is forecasted to increase by 11%, and wouldreach the level of 2572 mm during the period between 2090 and2099. The fluctuations in year-to-year rainfall are also expected

: þ852 2356 2218.(L.H.T. Choy), [email protected] (S.W.K. Mak).emperature of 28 �C at night-um temperature of 33 �C in

temperature of 12 �C at day-

All rights reserved.

to be greater, resulting in more extremely wet and moreextremely dry years.3

While climate change is a natural phenomenon, it is also inducedby human activities that include the use of fossil fuels such as coal,natural gas and liquid fuel for combustion in daily life, emittinggreenhouse gases (GHGs) in the atmosphere. There exist significantlinkages among climate change, urban development and humansettlement. OECD (2008) suggests that approximately 50% of theworld’s population live in cities, and thisfigure is increasing, reaching60% by 2030. Cities also contribute a large proportion of GDP, and arethe cores of economic activity for both developed and developingcountries. Against this background, cities do not only provide jobsandplaces for economic activities, but also social, environmental andcultural services (Bicknell, Dodman, & Satterthwaite, 2009).

Hallegatte, Henriet, and Corfee-Morlot (2011) point out thatcities are strongly integrated systems that face multiple stressesand rapid changes, in which transport, energy, water infrastruc-tures have to function altogether. The persistent concentration ofpopulation and economic activity makes cities particularlyvulnerable to climate change as built infrastructure are locatedthere; and as they comprise roughly 60e80% of world energy use

3 An extremely wet year is defined as a year with annual rainfall more than3187 mm while an extremely dry year is defined as a year with annual rainfall lessthan 1282 mm.

Page 2: Toward a low carbon Hong Kong: A proposal from the institutional perspective

4 Biocapacity is defined as the area of the earth necessary to produce resourcesand absorb CO2 per person globally.

L.H.T. Choy et al. / Habitat International 37 (2013) 124e129 125

(Bicknell et al., 2009; Newman, Beatley, & Boyer, 2009). Hence, theapproach cities develop and how they manage energy consump-tion will be the solutions to a successful climate policy. Moreover,a reduction in greenhouse gas emissions at city level will not onlydeliver global benefits in the form of less drastic climate change,but also local co-benefits, including cleaner air, quieter and greeneroutdoor spaces, and new jobs in green business areas, such asclean energy or waste recycling and reuse (Bollen, Guay, Jamet, &Corfee-Morlot, 2009; Hallegatte & Corfee-Morlot, 2011; OECD,2000).

This paper is organized as follows. It begins with a literaturereview which briefly describes the set up of the emissions tradingscheme worldwide. Section 3 presents some basic informationabout CO2 emissions in Hong Kong, suggesting a 19.0% increasefrom 1990 through 2008. Methodology is provided in Section 4, inwhich a modeling of CO2 emissions is estimated to show thatelectricity consumption is the primary factor contributing to thevariations in CO2 emissions. Section 5 shows the market situationsof the local electricity market. Section 6 proposes two methods toreduce the greenhouse gas emissions by decreasing theconsumption of electricity within buildings. The last sectionconcludes the major findings.

Literature review

Putting a price on greenhouse gas emissions is a ground-breaking policy in climate change mitigation. Without a commonunit of measurement using price, it would be more difficult for theglobe to implement the economic transformation to restrict thetemperature rise by 2 �C set by the Copenhagen Accord goal (OECD,2009). Hood (2010) reviews the design elements of mandatoryemissions trading system that had been established or were underconsideration in 2010. It reveals that mandatory emissions tradingsystems have already been in operation in many nations andeconomic organization, such as European Union (EC), Norway,Switzerland, New Zealand, Alberta, New SouthWales, the US, Tokyoand the UK. Other trading systems, such as the Western ClimateInitiatives (WCI) linking some states of the US and Canadianprovinces, California, Korea, Brazil and China are under consider-ation. Although numerous studies suggest that the cap and trademarket is never flawless (Hahn & Stavins, 2010; Matisoff, 2010),many experts in this field attempt to review the existing andproposed emissions trading systems in order to better design thesystem and make it operative (Hood, 2010). The emissions tradingsystem seems a promising way out for reducing the level ofgreenhouse gas emissions worldwide.

Global greenhouse gas emissions are found to be closely relatedto the buildings. Roughly one-third of global energy consumptiontakes place within buildings be it residential, industrial orcommercial (International Energy Agency, 2010). In general, nearly60% of the world demand for electricity comes from residential andcommercial buildings. To reduce the emissions, policy and initia-tives should be targeted at the reduction in the use of electricitywithin buildings. In this article, we propose twomethods to restrictelectricity users from increasing their consumption of electricity,the first by changing the pricing arrangement of electricitycompanies to persuade commercial and industrial users toconsume less; and the second by organizing a cap and trade marketfor CO2 emissions to allow participants to gain by consuming lesselectricity.

Stylish facts about CO2 emissions in Hong Kong

Hong Kong Ecological Footprint Report 2010 suggests that HongKong people are living beyond the Earth’s limits (WWF-Hong

Kong, 2011). If everyone in the world adopted a similar lifestyleof Hong Kong people, we would need the equivalent resources of2.2 Earths. According to the report, Hong Kong has the 45th largestecological footprint per person in 2007 when compared to 150countries with population of at least 1 million. The ecologicalfootprint measures the degree of human demand for the regen-erative capacity of the biosphere, with the unit of measurementbeing the global hectares (gha). Hong Kong has an averageecological footprint of 4.0 gha per person, which is significantlyabove 1.8 gha of biocapacity.4

In Hong Kong, carbon dioxide (CO2) is the major greenhouse gasemissions, comprising 99% of total emissions. There wasa substantial reduction in GHG emissions starting from 1994.However, the GHG emissions have beenwitnessed to be on the risesince 1999. CO2 emissions have escalated from 33,300 kilotonnes in1999 to 42,000 kilotonnes in 2008, increasing by 26.13% during thisperiod. The Kyoto Protocol 1997 has established a target to reduceGHG emissions by at least 5% below the 1990 levels during theperiod between 2008 and 2012 (Lam, 2007). A total of 35 countriesand the European Community (EC) were committed to reducegreenhouse gas emissions below the levels specified in the treaty.The target GHGs cover CO2, methane (CH4), nitrous oxide (N2O),hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulfurhexafluoride (SF6). Although Hong Kong is not a party to the UnitedNations Framework Convention on Climate Change (UNFCCC), theHKSAR’s attitude is to join hands with foreign counterparts tocontrol GHG concentration in the atmosphere. Given a 19.0%increase in CO2 emissions between 1990 and 2008, Hong Kongmust take action as soon as possible, keeping the emissions downto 1990 levels or below.

Local government identifies that CO2 emissions in Hong Kongcome from several sources: (i) electricity generation; (ii) transport;(iii) other end use of fuel; (iv) waste disposal; (v) industrialprocesses; and (vi) agriculture, forestry and other land use. Figs. 1and 2 portray the trends of CO2 emissions by sources from 1990through 2008. Official figures by the Environmental ProtectionDepartment suggest that the main source of greenhouse gases isthe electricity generation throughout the years, comprising59e68% of total carbon dioxide emissions, followed by transport(16e23%), other end use of fuel (6e13%), waste disposal (3e6%),industrial process (1e4%) and agriculture, forestry and other landuse (less than 1%) (Fig. 3).

The difference between electricity generation and consumptionis normally the energy losses in the process of electricity genera-tion, transmission and distribution. If we take a careful examina-tion of the electricity consumption in Hong Kong from 1990through 2010, it is observed that total electricity consumptionincreased persistently, with the exception of a slight decrease in1994, 2008 and 2010. Total consumption first increased from92,271 terajoule in 1990 to 111,382 terajoule in 1994, and expandedthereafter to 160,098 terajoule in 2010, averaging an annualcompound growth rate of 2.94%. The decomposition of electricityconsumption suggests that its main component is the electricityconsumption by the commercial sector, with its consumptionincreasing from 41,582 terajoule in 1990 to 99,883 terajoule in2010. Electricity consumption by domestic households alsocomprises a large proportion of total consumption during the sameperiod, increasing from 19,037 terajoule in 1990 to 39,344 terajoulein 2010. Another important source of electricity consumptioncomes from industrial sector, though its consumption has consis-tently kept decreasing.

Page 3: Toward a low carbon Hong Kong: A proposal from the institutional perspective

Fig. 3. Proportion of CO2 emissions by source. Source: Environmental ProtectionDepartment.

Fig. 1. CO2 emissions in Hong Kong (kilotonnes). Source: Environmental ProtectionDepartment.

L.H.T. Choy et al. / Habitat International 37 (2013) 124e129126

Methodology

To support our proposed methods to reduce CO2 emissions byrestricting the use of electricity, we first need to prove that thereexists a positive relationship between electricity consumption andgreenhouse gas emissions within the Hong Kong context. In thisarticle, we estimate a simple econometric model to show that elec-tricity consumption is the explanation for increasing CO2 emissionsin Hong Kong. Based on the factors suggested by the EnvironmentalProtection Department, we have developed a simple model of CO2emissions for Hong Kong from 1990 through 2008. The amount ofCO2 emitted is specified as a function of electricity consumption,transport (in terms of petroleum and LPG consumption), solid wastedisposed at landfill, industrial process (IP) and agriculture, forestryand other land uses (in terms of GDP contributed by agriculture,forestry, mining and quarrying, AFMQ). All variables are computedfor the period between 1990 and 2008, yielding a total of 19 yearlyobservations. The model is estimated in double-log form, with themajor advantage that the results are easily interpreted. Since thecoefficients on independent variables are response elasticities, theywill be discussed in terms of the anticipated effect of a givenpercentage increase in value of the independent variables. Yearlydata aremainlyobtained fromtheElectrical andMechanical ServicesDepartment (2010) and Environmental Protection Department(2011).. If electricity consumption is estimated to be statisticallysignificant, then we have grounds to claim that Hong Kong shouldfocus on reducing the level of emissions by offering incentives todomestic households and companies to consume less electricity.

Fig. 2. CO2 emissions by source (kilotonnes). Source: Environmental ProtectionDepartment.

Hong Kong electricity market

In Hong Kong, there are two electricity companies: the HongKong Electric Company (HEC) serving Hong Kong Island andLamma Island, and the CLP Power Hong Kong Limited (CLP)serving Kowloon, the New Territories, including Lantau Island,Cheung Chau, and most of outlying islands. The HEC has powerplant in Lamma Island, with annual electricity supply ranging from10,773 million kWh and 10,933 million kWh from 2006 through2010 while CLP supplies electricity to 2.3 million customeraccounts in Kowloon and the New Territories, which representapproximately 80% of the territory’s total population. Besides CLPalso extends its electricity supply to part of the GuangdongProvince.

Both power companies are private utilities that are regulatedunder the Scheme of Control (SOC). The SOC is a 15-year contractsigned between a private firm and the local government. The mainpurpose of this contract is to ascertain the producer’s right toserve the market demand and the consumer’s right to be served(Lam, 2004). Under the SOC, the two electricity plants are oper-ating vertically in business from electricity generation, trans-mission and distribution, and they are subject to both rate ofreturn control and price control. One point that is noteworthy isthat although these two companies do not operate under fran-chises, each of which is the sole supplier of electricity in its ownservice area, and there is absolutely no competition betweenthem. In supplement, there are a number of built-in automaticadjustment mechanisms in tariffs and returns under the SOCagreement, with the aim of saving the governance costs. Throughthe setting up of a Development Fund to make internal transfers,the rate of returns on investment and prices are more stabilizedover time (Lam, 2004).

The current SOC allows HEC and CLP to earn a rate of return onassets financed through equity of 15% and on assets funded throughdebt of 13.5%. Excess profits are transferred to a Development Fundthat may be used for future investment for which the permittedrate of return is also 13.5%. Moreover, the SOC also allows the twoelectricity companies to pass through the increasing fuel costs totheir customers, hence, ensuring continued profits to their fuelsuppliers; and providing private utilities with little incentives toprudently invest in turn. This arrangement has received manycriticisms from professional institutions as well as the generalpublic. Federation of Hong Kong Industries (2005) argues that theSOC agreement allows the private utilities to stay inefficient, withno hard penalties imposed on inefficient operation.

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L.H.T. Choy et al. / Habitat International 37 (2013) 124e129 127

Proposal to reduce electricity consumption

Turning to our empirical test, empirical findings suggest thatelectricity consumption is the primary factor responsible for thevariations in CO2 emissions in Hong Kong. Its estimate is highlysignificant andpositive, indicating that a reduction in1% inelectricityconsumption is associated with a 1.71% reduction in CO2 emissionsduring theperiodunder investigation. The rest of other factors are allstatistically insignificant, suggesting no power in explaining thevariations in the emissions. These results may be attributed to thefact thatwhile other types of fuel, such as natural gas, are also used inthe generation of electricity, the amount of CO2 emitted in thecurrent year also depends on the amount emitted in the last year, assuggested by a very high value of the estimates of AR(1).

lnðCO2Þ ¼ �8:881ð�2:133Þ

þ1:713 lnðElectricityÞð5:634Þ

�0:065 lnðPetroleumÞð�0:602Þ

�0:042 lnðLPGÞð�1:313Þ

�0:089 lnðWasteÞð�1:142Þ

þ0:024 lnðIPÞð0:096Þ

þ0:013 lnðAFMQÞð0:112Þ

þ0:897ARð1Þð15:757Þ

bR2 ¼ 0:839 DW ¼ 2:192

A reduction in local CO2 emissions doesn’t only benefit HongKong, but also contribute to the better environment of the globe. Toreduce the emissions level down to 1990 level from 2008 level,Hong Kong needs to reduce at least 19.0% of the emissions, that is tosay, electricity end-users as a whole must decrease their electricityconsumption by 11.1%. To transform the impact of reduction inelectricity consumption (11.1% or 142,390.8 terajoule or 39.6 billionkWh) intomonetary terms, a reduction in this amount of electricityconsumption means a reduction of 6.7 billion kg (6700 kilotonnes)of CO2, or HK$ 39.6 billion.5 Furthermore, if we assume that a treeabsorbs 23 kg of CO2 throughout its life (Council for SustainableDevelopment, 2011), a total of 0.29 billion trees can be saved.

Our empirical findings suggest that electricity consumption hasbeen the primary source of greenhouse gas emissions in HongKong. To reduce the level of emissions, we propose that actionshould first target at reducing the level of electricity consumption,and then other types of energy consumption. Although these powerplants are committed to minimize air pollution and CO2 emissionsthrough reducing, reusing, recovering and recycling raw materialsand resources, these policies are largely supply-side and do not givemuch incentive to electricity end-users to reduce energyconsumption. In this article, we propose twomethods to reduce theelectricity consumption by end-users, one focusing on the pricingarrangement of electricity and the other focusing on the conceptborrowed from the cap and trade market by the EU EmissionsTrading System (EU ETS).

i. Pricing arrangement

Currently, the two electricity companies are charging the supplyof electricity at different rates for different types of customers(Hong Kong Electric, 2011a, 2011b; CLP Power Hong Kong Limited,2011). For example, CLP charges at progressive rates for domesticcustomers, and regressive rates for commercial and industrialcustomers. In Hong Kong, the consumption of electricity bycommercial and industrial sectors comprises approximately 70% oftotal electricity consumption during the period between 1990 and

5 The average electricity tariff is HK$1 per kWh.

2010 (see Fig. 4). While 2.4 million domestic households paya progressive rate of electricity, CLP charges cheaper prices to largeusers who consume more than 20,000 kWh of electricity monthly.Cheung (2011) suggests that domestic households pay 78e98 centsper unit of electricity while commercial and industrial users pay aslow as 37 cents per unit during non-peak hours.

These large users are composed of commercial clients, such astheme parks, shopping centers and Grade A commercial properties.Although they can afford paying higher prices for electricity, theyenjoy lower rates that are heavily subsidized by domestic house-holds and owners of small businesses. Greenpeace estimated thatlarge electricity users are subsidized with roughly HK$ 900 millionto 1.2 billion a year (South China Morning Post, 12 February 2011).As these large users are charged at cheaper prices when theirconsumption increases, this pricing arrangement indeed encour-ages them to consume more units of electricity than necessary. Onthe one hand, demand for electricity consumption is stimulated. Onthe other hand, electricity companies are provided an excuse toinvest more to increase its power generating capacity, given theirrates of profit on fixed asset being guaranteed. There exists a causaleffect between electricity consumption and their level of invest-ment, and the overall outcome is that increase in electricityconsumption is associated with a sustained growth of CO2 emis-sions in Hong Kong. To reduce the greenhouse gas emissions, thereis an urgent need to call for a change in the pricing arrangement ofelectricity consumption, requiring these large users to pay atprogressive rates or all users to pay at flat rate..

ii. Cap and trade market

In the meantime, we propose another solution to reduce carbondioxide emissions by organizing a cap and trade market to reducethe use of electricity consumption, in which local electricitycompanies act as market clearing houses to settle the transactionsof carbon dioxide emissions between participating domestichouseholds, private enterprises as well as public companies. Elec-tricity plants can set a cap on the maximum amount of carbondioxide that is allowed to emit by their customers. The cap isallocated free or sold to households and companies in the form ofemission permits which represent the right to emit a pre-determined amount of carbon dioxide.6 Participants who consumemore electricity than the amount permitted are required to buypermits from those who have spare allowance.

The proposed scheme, Hong Kong Emissions Trading System(HK ETS) is founded on the “cap and trade” principle. There is a capon the total amount of CO2 emissions that can be emitted bydomestic households, commercial (such as restaurants, motorvehicles and mass transit railway), factories as well as governmentoffices. Within the maximum limit on emissions, participantsobtain emission allowances from the organizers (HEC and CLP inthis case) which they can sell to or buy from one another whennecessary. Therewill be a limit on the total number of allowances toensure that each of them can secure a price. At the year end, eachparticipant has to return enough allowances to cover his emissions,or they are liable to heavy fines. If a participant, say a domestichousehold, reduces its CO2 emission, it can keep the remainingallowances to cover his future needs or to sell them to anotherparticipant who needs extra allowances. The EU ETS believes thatthis kind of trading ensures that emission can be reduced at leastcosts (European Commission, 2010).

6 Ruth et al. (2008) demonstrate that the allocation of permits by auction canprovide revenues that reinforce programme goals by funding investments in energyefficiency, hence, lowering the cost of the programme for participants.

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Fig. 4. Electricity consumption by source (terajoule). Source: Census and StatisticsDepartment (2011).

L.H.T. Choy et al. / Habitat International 37 (2013) 124e129128

To join this scheme, participants should register with the twoETS registries. People who live in Hong Kong Island and LammaIslands should register with Hong Kong Electric while people wholive in Kowloon and the New Territories should register with CLP.The two registries are online databases that should record:

1. accounts (held by an individual or a company) to which thoseallowances have been allocated;

2. allowances transferred by the account holders;3. verified CO2 emission on a yearly basis; and4. reconciliation of allowances and verified emission on a yearly

basis.

The registries system must make sure that all transactions ofallowances under the HK ETS are accurately recorded. It should alsokeep track of the ownership of allowances in the same way as thebanking system keeps track of the ownership of money. Thoseallowances are held in accounts in electronic registries adminis-tered by HEC and CLP. The HK ETS registries should also provideaccess to public information, and reports on the participants andthe performance of the trading scheme on a regular basis. Toparticipate in the HK ETS, an individual or a company must open anaccount in the ETS registry, simply by applying online at the registrywebsite. HEC and CLP should record and authorize all transactionsthat take place between accounts in the HK ETS registries. Topromote administrative efficiency, the HEC and CLP should alsoprovide clear and transparent guidelines to the participants so thatthe transactions can be more efficiently carried out.

As pointed out by Ellerman and Buchner (2007), there will bemany problems associated with operating a cap and trade marketfor greenhouse gas emissions, such as the method of allocating theallowances, data problem and the reliance on emissions projec-tions, etc. However, we argue that if EU can organize a cap and trademarket for greenhouse gas emissions successfully reducing CO2emissions, there is no reasons why a small city like Hong Kong withonly 7 million people cannot, given that Hong Kong is under onlyone jurisdiction, and with two electricity power plants. There is nodoubt that the road ahead will be very challenging, but we believethat it will be on the right track if Hong Kong is moving toward thisdirection to reduce the level of emissions.

Conclusions

The objective of this paper is to propose twomethods to restrictthe level of CO2 emissions by reducing electricity consumption in

Hong Kong. The first method is to charge the commercial andindustrial users of electricity at progressive rates or all types ofelectricity users at flat rate, with a view to pushing them to restrictelectricity consumption. The second one involves a mechanismwhich is similar to the cap and trade market operated by theEuropean Community, encouraging electricity users to reduceenergy consumption in order to reduce CO2 emissions. Althoughtraditional clues, such as, the use of energy efficient electricalappliances, promotion of education of environmental protection tocitizens and the use of green energy, are not ineffective, they do notgive much incentive to electricity end-users to reduce their level ofelectricity consumption. The HK ETS proposed by this article allowsparticipated domestic households, companies and even govern-ment offices to trade excess pollution permits for money. Partici-patingmembers that consumemore electricity than the permits arerequired to buy from those who have extra permits. The goal of thisscheme is to encourage electricity end-users to reduce energyconsumption byoffering them a channel to gain from saving energy.

At present, mitigating for greenhouse gases and adaptinghuman settlements to tackle with the extreme weather conditionsresulting from global warming have become the most pressingissue of our times (de Oliveira, 2009; Pizarro, 2009). Some forecastsby the Intergovernmental Panel on Climate Change (IPCC) suggestthat even with the most progressive mitigation policies and in themost optimistic climate scenario, the impact of climate change willbe inevitable in the next decades (Klein et al., 2007). Some regionsare expected to suffer more than others since the impact andcapacities to adapt vary across countries (Adger, Huq, Brown,Conway, & Hulme, 2003). Ironically, the poorest and most vulner-able groups and countries are likely to be disturbed most severely,widening the world inequality (Thomas & Twyman, 2005). HongKong is an international city that is almost free of natural disaster.The impact of climate change upon Hong Kong is at most theunpleasant weather events, like very hot days and flooding occur-ring more frequently and intensive. Despite the modest harmsuffered by Hong Kong, it should take responsibility to join handswith foreign counterparts to control the carbon dioxide emissionsin the atmosphere.

Acknowledgments

The authors have benefited greatly from careful review andthoughtful suggestions by the anonymous referees. They also thankthe Hong Kong Polytechnic University for the research grant andfinancial support for this research project (PolyU Research Grant 1-ZV4Q). The authors are, of course, responsive for the content.

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