Carbon emissions trading in China: the evolution from pilots to a nationwide scheme

Abstract

The Chinese central government has approved seven pilot carbon trading schemes. These pilot regions have been deliberately selected to be at varying stages of development and are given considerable leeway to design their own schemes. These schemes have features in common, but vary considerably in their approach to issues such as the coverage of sectors, allocation of allowances, price uncertainty and market stabilisation, potential market power of dominated players, use of offsets, and enforcement and compliance. Our study finds that educating the covered entities, strictly enforcing compliance rules, ascribing allowances as financial assets and defining their valid duration, and including non-compliance in the credit record of noncomplying entities are crucial to enabling active participation in carbon emissions trading. Moreover, the retrospective examination of the carbon trading pilots suggests that a national emissions trading scheme (ETS) should at least be based on uniform standards for measuring, reporting, and verification, the allocation of allowances, and the rules of compliance. Until a nationwide carbon market becomes fully functional after 2019, regional ETSs continue to function in parallel but those entities covered in the existing regional ETSs will be unconditionally integrated into a nationwide ETS if they meet the latter's threshold. Policy relevanceThe purpose of launching the seven carbon trading schemes and the reason why these seven pilot regions are given considerable leeway to design their own schemes are to enable China to develop a nationwide ETS with expanding geographical coverage and sectoral scope to complement the administrative means on which China, to date, has predominantly relied to achieve its increasingly stringent energy-saving and carbon intensity goals. This article discusses the lessons that carbon trading pilots have learned either from their own practice or other pilots in the first compliance year, as well as the good practice that the to-be-established national scheme could follow, and discusses the potential pathways for the evolution of regional pilot carbon trading schemes into a nationwide carbon trading scheme. Insights into the design, implementation, and compliance of China's carbon trading pilots and potential pathways help make these pilots work reliably and effectively and will smooth the transition from the pilots to a national ETS.

Developing low-carbon cities through pilots

“…During the same period, the CO 2 per capita in low-carbon city pilots was 10.3 tCO 2 /person, while the national average was 5.9 tCO 2 /person (Local Governments, see Supplemental data). The latest data can be found in Zhang's research (Zhang, 2015). With the exception of four municipalities (Beijing, Shanghai, Tianjin, and Chongqing), the CO 2 intensity per unit of GDP reduction ratio in 2010 -2011 in 87.5% of the remaining 32 low-carbon city pilots was higher than the provinces to which they belong.…”

Assessing the design of three carbon trading pilot programs in China

“…Quemin and Wang (2014) describe all seven pilots and recommend that they pursue bilateral links. Zhang (2015) and Duan et al (2014) describe all seven pilots and discuss their initial year of operation. Zhang et al (2014) describe all seven pilots and recommend stronger national law, more transparent and independent reporting of carbon emissions, and coordination of climate policies with broader energy and fiscal policies.…”

“…16 Pilots outside the scope of this analysis also contain provisions that might limit market power. For example, Beijing imposes an auction purchase limit-the pilot holds auctions if the allowance price reaches a trigger point-that limits the portion of allowances that any one regulated firm can purchase to 15% of the total (Zhang, 2015). 17 Qi et al (2014) suggest that such market power may already have occurred in Hubei.…”

Are China's climate commitments in a post‐Paris agreement sufficiently ambitious?

“…While these pilots have experienced ups and downs, their performance is generally good because of built‐in incentives and mechanisms and a variety of measures and policies in place to enhance their compliance. Their positive start and performance provides useful lessons for improving their operation and compliance in coming years and developing and launching national emissions trading scheme by 2017 . Given that the EU has been the frontrunner in carbon emissions trading from the beginning, it has provided useful advice and lessons for developing China's own trading schemes through the on‐going EU‐China emissions trading capacity‐building project.…”