Regional Pilot Carbon Emissions Trading and its Prospects in China

Abstract

As the world's largest CO2 emitting country, China may become the largest carbon trading market in the future. While building an emissions trading scheme (ETS) is becoming one of the major policies being adopted to reduce CO2 emissions in most developed countries, the government of China has declared and implemented regional pilot emissions trading schemes in seven municipalities and provinces. This study reviews the history of the emissions trading policy and discusses the lessons learned. From an economic perspective, we further estimate the potential structure of the pilot jurisdictions in China, including overall trading emissions, the number of enterprises included, and the industrial structure across the pilot ETSs. It is speculated that challenges arise from the inherent size and highly-concentrated industrial structure of the pilot ETSs. Inter-pilot trading and regulatory harmonization are necessary to boost trading and liquidity in the future.