Regulatory Institutions and Market-Based Climate Policy in China

Abstract

Domestic regulatory institutions are essential components of emissions trading systems (ETS). Not only do they shape the ways that markets operate, they also condition the environmental value of the carbon credits they produce. However, the literature on global carbon politics has paid little attention to local ETS regulators. In a decentralized system increasingly based on a noodle bowl of diversified environmental markets, the study of carbon markets must integrate the institutions in which they operate. This article focuses on China, which, due to its size, is both keen to and expected to have a significant impact on the global system of market-based instruments. We examine how China’s regulatory institutions have worked to implement the seven ETS pilots launched since 2012, and tease out some implications regarding how China’s national ETS may contribute to global climate change governance. In this study, we analyze both formal and informal regulatory institutions, through the practice of local actors. The main finding is that the tension between the state and markets in China’s ETS implementation has resulted in a reinforcement of state domination rather than the emergence of robust regulatory institutions. The contribution that the ETS makes to China’s emissions reduction is also limited by more pressing environmental and industrial policies that local regulators must prioritize. Local nonregulatory implementation practices could undermine the long-term objective to integrate China’s ETS with others under article 6 of the UNFCCC.

Back to the future: Can Chinese doubling down and American muddling through fulfill 21st century needs for environmental governance?

“…For instance, the target disaggregation scheme used to assign China's national energy intensity targets to provinces in the 11th FYP period was widely criticized for failing to take into account the different potential for energy conservation in different provinces, though the problem was later alleviated under the 12th FYP (Zhao & Wu, ). There are serious doubts at this stage regarding the efficiency as well as the effectiveness of the nationwide cap‐and‐trade system China plans to rely on to restrict and ultimately reduce greenhouse gas emissions (Cong & Lo, ; Goron & Cassisa, ; Zhao, Jiang, Nie, & Chen, ).…”

“…Efforts to meet the targets were again enforced through the TRS. The central government also took full advantage of pilot programs such as low-carbon city pilots, low-carbon industrial park pilots, and emissions trading pilots to test strategies for reducing emissions (Biedenkopf, Van Eynde, & Walker, 2017;Goron & Cassisa, 2017;Liu, Wang, Song, & Qi, 2018;Wang, Song, He, & Qi, 2015).…”

“…There are serious doubts at this stage regarding the efficiency as well as the effectiveness of the nationwide cap-and-trade system China plans to rely on to restrict and ultimately reduce greenhouse gas emissions (Cong & Lo, 2017;Goron & Cassisa, 2017;Zhao, Jiang, Nie, & Chen, 2016).…”

“…The reinforcement of state domination in environmental governance is also ironically evidenced by the pilot carbon trading program, which is supposed to transfer some governance to the market. For instance, state actors implemented innovative forms of control practices such as cap management and price interventions to ensure policy outcomes (Goron & Cassisa, ). The National Development and Reform Commission (NDRC) played a central role in steering capacity building efforts by external financiers.…”

China’s Development of ETS as a GHG Mitigating Policy Tool: A Case of Policy Diffusion or Domestic Drivers?

“…While some researchers have investigated earlier experience of market mechanisms in China and their implications for the carbon market (Hart & Ma, ; Tung, ; Zhang et al, ), others have studied the companies participating in the pilot projects (Shen, ). Miao (, p. 2) discusses whether Chinese institutions are ready to incorporate policy of this nature, while Goron and Cassisa () ask what China’s regulatory institutions have done to implement the seven ETS pilots.…”