Carbon Markets in China: Development and Challenges

ABSTRACT

China is attempting to initiate its own carbon market—an important market-based policy instrument which would determine the fate of global climate policy as the largest emitter of carbon dioxide across the world. This article looks at carbon trading development so far and examines the key challenges ahead in China. These past experiences—whatever from international CDM practice, or SO₂ emission trading and a domestic voluntary carbon market—have paved the solid way to build the existing ETS pilots similar to European Union Emissions Trading System (EU ETS). The investigation into China’s ETS pilots discovered some important and urgent issues such as the capsetting and deepening energy market reform.

KEY WORDS:

• cap-and-trade
• carbon market
• CDM
• China
• ETS pilots

JEL CLASSIFICATION:

• Q43
• Q48

Acknowledgments

The authors appreciate the comments of two anonymous reviewers and the assistance of the journal’s editor, which significantly enhanced the quality of the article.

Funding

The work reported in the article is funded by the National Natural Science Fund of China (no. 71373076 and no.71173075).

Notes

^1. The Clean Development Mechanism (CDM) is one of the flexibility mechanisms defined in the Kyoto Protocol that provides for emission reduction projects which generate Certified Emission Reduction units which may be traded in emissions trading schemes.

^2. The Kyoto Protocol is an international agreement linked to the United Nations Framework Convention on Climate Change (UFCCC), which commits its Parties by setting internationally binding emission reduction targets. The Kyoto Protocol was adopted in Kyoto, Japan, on 11 December 1997 and entered into force on 16 February 2005.

^3. Equivalent carbon dioxide describes amount of greenhouse gas may cause, which is expressed as parts per million by volume, ppmv.

^4. State Environmental Protection Administrative (SEPA) was renamed by the Ministry of Environmental Protection (MEP) in 2008.

^5. Exchange rate in 2013: 1 US $ = 6.15 CNY.

Additional information

Funding

The work reported in the article is funded by the National Natural Science Fund of China (no. 71373076 and no.71173075).