China’s emissions trading scheme: First evidence on pilot stage

Abstract

Greenhouse gas emissions are a worldwide concern, especially in China, who has become the largest greenhouse gas emitter. In 2013, China initiated pilot emissions trading schemes (ETS) in seven regions with the aim of creating a national system by 2017 to reduce carbon emissions at low cost. We provide a systematic overview of the practice, performance, and problems of China’s ETS pilots during the first stage, which lasted from 2013 to 2016, and highlight some proposals for the forthcoming national system. We depict the features of the pilots by focusing on the core elements of the ETS: scope, cap setting, allocation, MRV, and compliance. The performance of China’s ETS pilots is characterized by low carbon prices with severe temporal fluctuation, and low levels of liquidity with high compliance rates. The problems include over-allocation of emission allowances, inadequate legal and regulatory infrastructure, underdevelopment of the carbon financial market, and poor market transparency. Accordingly, we propose recommendations from the perspective of legislation, cap setting, transparency, price management, and policy coordination.