Towards a typology of pilots: the Shanghai emissions-trading scheme pilot

Abstract

Piloting has become a prevalent feature of Chinese politics. However, there is a gap in classification of pilot types. This article offers an initial ordering of pilot types, categorized on the basis of institutional dynamics, changes, and staying power of institutions; and how pilots are handled by the local government. Government–business interactions are seen as an indicator of the government’s handling of the pilot. Three pilot types are proposed: perfunctory, policy-focused, and goal-oriented. One case is examined in depth: the Shanghai carbon-market emissions trading scheme pilot, from the time it was announced in November 2011, to the end of the first compliance cycle in June 2014. The Shanghai pilot was arguably a goal-oriented one: the local government put considerable effort into ensuring positive results, by allocating resources and interacting with the enrolled companies. The case-study draws on written sources such as government notices, regulations and news, as well as on semi-structured interviews conducted in 2015.

Keywords:

• Pilot types
• local government–business relations
• Emissions Trading Scheme (ETS)
• Shanghai

Notes

Acknowledgments

I wish to thank Steinar Andresen, Desmond McNeill, Leif Christian Jensen, Genia Kostka, and Anna Ahlers for comments to early versions of this text. I deeply appreciate Maren Aase’s insightful and thorough feedback. The theoretical thinking in this article took shape after a conversation with the brilliant Hedda Flatø. I also received helpful comments from two anonymous reviewers. My research stay was graciously hosted by Fudan University’s Nordic Center and Professor Jiang Ping at the Fudan-Tyndall Center. Susan Høivik edited the language. Any remaining errors, however, are my own.

Disclosure statement

The author reports no conflicts of interest.

Notes

1 Heilmann, “Policy Experimentation,” 2. In this article I base the understanding of “policy experimentation” and “policy innovation” on Teets’ definition: as the actions or process of planning and forming, trying out and implementing a policy perceived to be new to the jurisdiction. See Teets “The Politics of Innovation,” 82. A policy need not be entirely new in the world for it to be an innovation. There were carbon markets in operation outside China at the time of the Shanghai ETS pilot, for example.

2 Heilmann, “Policy Experimentation,” 5–7.

3 Lin and Xu, “Structural Restraints and Institutional Innovation,” 20–49.

4 Tsai and Dean, “Experimentation under Hierarchy,” 339–358.

5 Li and Fu, “China’s Health Care System Reform,” 240–253.

6 Li, “Self-Motivated versus Forced Disclosure,” 331–351.

7 Reklev, “China Air Pollution Permit Trade Worth $2.8 bln but National Launch Far Off.” Carbon Pulse, January 24, 2019. Accessed July 29, 2019. http://carbon-pulse.com/67681/

8 Schreurs, “Multi-Level Climate Governance,” 170–171.

9 Khanna et al., “China’s Pilot Low-Carbon City.” Experimenting with climate policies at the city level is not a uniquely Chinese phenomenon; see Castán Broto and Bulkeley, “A Survey of Urban Climate Change Experiments,” 92–102.

10 Gosens et al., “China’s Next Renewable Energy Revolution,” 149–150.

11 Hou et al., “Comparative Study of Commercial Building,” 204–215.

12 Stanway, “China Launches Five ‘Green Finance’ Pilot Zones.” Reuters, June 27, 2017. Accessed July 29, 2019. https://www.reuters.com/article/us-china-environment-finance/china-launches-five-green-finance-pilot-zones-idUSKBN19I060

13 Jotzo and Löschel, “Emissions Trading in China,” 3–8.

14 Heilmann, “From Local Experiments to National Policy,” 1, 29–30.

15 Shin, “Environmental Policy Innovations,” 834.

16 Eaton and Kostka, “Authoritarian Environmentalism Undermined,” 375; Shin, “An Emerging Architecture,” 189; Shin, “Environmental Policy Innovations,” 843–844; Wang et al., “Developing Low-Carbon Cities,” S97.

17 See for example Jotzo and Löschel, “Emissions Trading in China,” 3–8; Hou et al., “Comparative Study of Commercial Building,” 204–215; Li and Fu, “China’s Health Care System Reform,” 240–253.

18 The term “institutions” here refers to “formal or informal procedures, routines, norms and conventions embedded in the organizational structure of the polity,” (Hall and Taylor, “Political Science and the Three New Institutionalisms,” 938). Instituions include formal institutions such as laws and regulations, and informal institutions such as customary behavioral patterns.

19 Liu et al., “Policy Uncertainty and Corporate Performance,” 350–360.

20 Zhao et al., “Implementation of Energy-Saving Policies,” 170–184.

21 ICAP (International Carbon Action Partnership), “China–Shanghai pilot ETS”, ICAP, April 9, 2019. Accessed July 29, 2019. https://icapcarbonaction.com/en/?option=com_etsmap&task=export&format=pdf&layout=list&systems%5B%5D=62

22 The pilot period was originally set to run for three years, 2013–2015, but in 2015 the government decided to extend the pilot to 2016 with some changes, awaiting the national ETS start in 2017. As of July 2019 it is still in operation.

23 Naughton, Growing Out of the Plan; Nolan, “The China Puzzle,” 26.

24 Woo, “The Real Reasons for China’s Growth,” 115–137.

25 Heilmann, “Policy Experimentation,” 1–26.

26 Heilmann, “Policy Experimentation,” 5–7.

27 Such as Jahiel, “The Contradictory Impact of Reform,” 91–98; Kuo, “Privatization Within the Chinese State,” 397–405; Naughton, Growing Out of the Plan, 293–300.

28 Heilmann, “Maximum Tinkering under Uncertainty,” 457.

29 Such as Ahlers and Schubert, “Strategic Modelling,” 831–849; Lin and Xu, “Structural Restraints and Institutional Innovation,” 37–40; Tsai and Dean, “Experimentation under Hierarchy,” 339–358.

30 Heilmann, Shih, and Hofem, “National Planning and Local Technology Zones,” 896–919; Huang, “Policy Experimentation,” 67–89; Li and Fu, “China’s Health Care System Reform,” 240–253.

31 Shin, “China’s Failure of Policy Innovation,” 918–934.

32 Ibid., 925–927.

33 Li, “Self-Motivated versus Forced Disclosure,” 331–351.

34 Ibid.

35 Mei and Liu, “Experiment-Based Policy Making,” 321–337.

36 Khanna et al., “China’s Pilot Low-Carbon City,” 118; Peng and Bai, “Experimenting Towards a Low-Carbon City,” 201–212.

37 Heilmann, “Maximum Tinkering under Uncertainty,” 457.

38 Guan and Delman, “Energy Policy Design,” 82.

39 Wang et al., “Developing Low-Carbon Cities,” S96.

40 Khanna et al., “China’s Pilot Low-Carbon City,” 118.

41 Schreurs, “Multi-level Governance,” 99.

42 Goron and Cassia, “Regulatory Institutions and Market-Based Policy,” 99–120.

43 Shen, “Chinese Business at the Dawn,” 339–354.

44 Deng et al., “Effectiveness of Pilot Carbon Emissions Trading,” 992–1011.

45 Zhang et al., “Integrity of firms’ emissions reporting,” 164–169.

46 Tsai and Dean, “Experimentation under Hierarchy,” 339–358.

47 Shin, “Mission-Driven Agency,” 549–580.

48 Ibid., 555.

49 Heilmann et al., “National Planning and Local Technology Zones,” 896–919.

50 Heilmann, “Policy Experimentation,” 9–10. More locally, cities may start their own pilots. For example, Shanghai municipal government has designated several areas within its jurisdiction as low-carbon pilot areas.

51 Shin, “Environmental Policy Innovations,” 836.

52 Stensdal et al., “China’s Carbon Market,” 185.

53 Teets, “The Politics of Innovation,” 95.

54 Li, “Self-Motivated versus Forced Disclosure,” 342–345.

55 Li and Higgins, “Controlling Local Environmental Performance,” 424.

56 Schreurs, “Multi-level Governance,” 99.

57 Li, “Self-Motivated versus Forced Disclosure,” 345–347.

58 Shin, “Environmental Policy Innovations,” 844–845.

59 Pilots may also engage local NGOs, schools and universities, etc., but as these actors are not potential polluters to the same extent as companies, and their roles in society differ from firms, they are not discussed here.

60 Van Meter and Van Horn, “The Policy Implementation Process,” 454–455.

61 Hsueh, “State Capitalism, Chinese-Style,” 87.

62 Chen and Faure, “When Chinese Companies Negotiate,” 42.

63 Eaton and Kostka, “Central Protection in China,” 685–704.

64 Hsueh, “State Capitalism, Chinese-Style,” 85–87.

65 Ibid., 92.

66 Szepan, “Government Involvement in the Chinese Economy,” 207–212.

67 Shin, “Environmental Policy Innovations,” 838.

68 12th Five-Year Plan, “The People’s Republic of China’s 12th Five-Year Plan for National Economic and Social Development” [Zhonghua renmin gongheguo guomin jingji he shehui fazhan di shi’er ge wu nian guihua gangyao]. 2011. ch. 6.21.1. Accessed July 29, 2019. http://www.gov.cn/2011lh/content_1825838.html

69 Stensdal, “Norms and Flexibility, ” 286.

70 Interview G.

71 Government of Shanghai, “Shanghai Municipality’s 12th Five-Year Plan" Period Plan For Energy Saving and Addressing Climate Change” [Shanghai Shi jieneng he yingdui qihou bianhua ‘shierwu’ guihua], 2012. chs.1.1.1 and 2.2. Accessed July 29, 2019. http://www.shanghai.gov.cn/nw2/nw2314/nw2319/nw22396/nw22403/u21aw597380.html

72 Shanghai DRC, “Shanghai DRC Environmental Notice 180 of 2012” [Hu faggai huanzi (2012) 180 hao], December 11, 2012. Preface, Accessed April 20, 2018. http://www.shdrc.gov.cn/gk/xxgkml/zcwj/zgjjl/16707.htm; Interview C.

73 Shanghai DRC, “Shanghai Carbon Market Report (2013–2014).” [Shanghai tanjiaoti baogao (2013–2014)], January 2015. p.21. Accessed July 29 2019. http://www.cneeex.com/upload/resources/file/2018/07/16/25279.pdf

74 Interview C.

75 Interviews C, E.

76 Shanghai DRC, “Shanghai DRC Environmental Notice 168 of 2013” [ Hu fagai huanzi (2013) 168 hao], November 22, 2013. ch.2. Accessed April 20, 2018. http://www.shdrc.gov.cn/gk/xxgkml/zcwj/zgjjl/16762.html

77 Ibid., ch.2.1–2.3.

78 Hsueh, “State Capitalism, Chinese-Style,” 92.

79 Interviews B, E.

80 Interview E.

81 Stensdal, “Norms and Flexibility,” 284.

82 Interview C.

83 Shanghai DRC, “Environmental Notice 168 of 2013,” ch.2.1–2.3.

84 Interview E.

85 SHEEE. “Shareholders.” [Gudong danwei], Shanghai Energy and Environment Exchange, July 20, 2019. Accessed July 29, 2019. http://www.cneeex.com/gywm/gddw/

86 Interviews C, D, E, F.

87 Interviews B, D, H.

88 Interview B.

89 Interviews C, D, E.

90 Interviews C, F.

91 Interviews B, C, E.

92 Interview A.

93 Interviews C, D.

94 Shanghai DRC, “Shanghai Carbon Market Report,” 21.

95 Ibid.

96 Ibid.

97 Shanghai DRC, “Environmental Notice 180 of 2012,” Preface.

98 Shanghai DRC, “Shanghai Carbon Market Report,” 20, Interviews A, D.

99 Interview A.

100 Shanghai DRC, “Shanghai Carbon Market Report,” 15.

101 Interviews C, F, H.

102 Between 2012 and 2014, the DRC published notices on detailed implementation, including guidelines on measuring, reporting, and verification (MRV) or lists of third-party verifiers.

103 Lo and Leung, “Environmental Agency and Public Opinion,” 691; Chen, “Union Power in China,” 676; Qi et al., “Translating a Global Issue,” 396; Shin, “An Emerging Architecture,” 66.

104 Shanghai DRC, “Shanghai Carbon Market Report,” 21–22.

105 Ibid., 22.

106 Government of Shanghai, “Shanghai Municipal People’s Government Decree No. 10, 2013” [Shanghai Shi Renmin Zhengfu ling di 10 hao 2013], 2013. chs.3.11–3.16, 6.11–6.15. Accessed July 29, 2019. http://www.shanghai.gov.cn/nw2/nw2314/nw2319/nw11494/nw12654/nw31364/u26aw37414.html

107 Shanghai DRC, “Shanghai DRC Environmental Notice No. 5 of 2014.” [Hu fagai huanzi (2014) 5 hao], January 10, 2014. Accessed November 20, 2018. http://fgw.sh.gov.cn/fzgggz/nyglhjnjb/zcwj/12508.html

108 The 10 verifiers chosen were Shanghai Tobler Quality Testing Technology Corporation Ltd., Shanghai Tellhow Intelligent Energy Saving Technology Corporation Ltd., Shanghai Energy Efficiency Center, Shanghai Tongji Carbon Assets Consulting Corporation Ltd., Shanghai Academy of Environmental Sciences, Shanghai Academy of Building Research, Shanghai Energy Saving and Emission Center Corporation Ltd., China Environmental United Certification Center Corporation’s (CEC) Shanghai Branch, China Quality Certification Center’s (CQC) Shanghai Branch, and the Shanghai Information Center (see Shanghai DRC. “Shanghai DRC Environmental Notice 21 of 2014” [Hu fagai huanzi (2014) 21 hao], February 25, 2014. Accessed July 29, 2019. http://fgw.sh.gov.cn/xxgk/cxxxgk/14826.html).

109 Chen, Kathy, and Reklev, “Shanghai Firms Meet Carbon Targets after Last-Day Permit Auction.” Point Carbon, June 30, 2014. http://www.pointcarbon.com/news/reutersnews/1.5839667

110 Government of Shanghai, “Municipal Government Decree No. 10, 2013,” ch.7.44.2.

111 Chen, Kathy, and Reklev, “Shanghai Generators Struggle with Targets in Illiquid Carbon Market.” Point Carbon, May 26, 2014. http://www.pointcarbon.com/news/reutersnews/1.5293470

112 Chen and Reklev, “Shanghai Firms Meet Carbon Targets.”

113 Chen and Reklev, “Shanghai Generators Struggle with Targets.” Some large companies like Baosteel were listed more than once, because responsibility is placed with the legal entity. A company’s factories or plants are separate legal entities, and the headquarters building might be located elsewhere and be a different legal entity. Thus, there are arguably fewer companies than 197 participating in the pilot, but the registered legal entities counted 197 when the pilot began. The Baosteel allowance shares of 25% were distributed to several Baosteel legal entities.

114 Chen, Kathy, and Reklev, “China Carbon Prices Firm Ahead of Deadline to Report Emissions Data.” Point Carbon, March 7, 2014. http://www.pointcarbon.com/news/reutersnews/1.4429933

115 Interview B.

116 Chen and Reklev, “Shanghai Generators Struggle with Targets.”

117 Ibid.

118 Government of Shanghai, “Municipal Government Decree No. 10, 2013” ch.6.37–6.39.

119 It has since been proposed to raise the limits to RMB 2 million for environmental transgressions. National People’s Congress. “Strengthen the Responsibility of the Local People’s Government” [Qianghua difang renmin zhengfu doudi zeren], January 2, 2018. Accessed July 29, 2019. http://www.npc.gov.cn/zgrdw/npc/cwhhy/12jcwh/2018-01/02/content_2036237.html

120 Government of Shanghai, “Municipal Government Decree No. 10, 2013,” ch.3.40.

121 Chen and Reklev, “Shanghai Generators Struggle with Targets.”

122 Government of Shanghai, “Municipal Government Decree No. 10, 2013,” ch.3.16.

123 Chen and Reklev, “Shanghai Generators Struggle with Targets.”

124 Shanghai DRC, “Shanghai DRC Notice No. 1 of 2014.” [Hu fagai gonggao (2014) 1 hao], June 13, 2014. Accessed July 29, 2019. http://fgw.sh.gov.cn/fzgggz/nyglhjnjb/zcwj/12516.html

125 This was not a change of rules, however, as the option of holding auctions as necessary was included in the pilot rules. See Government of Shanghai. “Shanghai Government Notice 64 of 2012” [Hu fufa (2012) 64 hao], July 31, 2012. part 3.5. Accessed July 29, 2019. http://www.shanghai.gov.cn/nw2/nw2314/nw2319/nw10800/nw11407/nw29273/u26aw32789.html

126 Shanghai Information Office, “This City’s Carbon Market Pilot Smoothly Entered the First Compliance Period.” [Ben shi tanpaifang jiaoyi shidian shunli jinru di yi ge fuyueqi], June 6, 2014. Accessed July 29, 2019. http://www.reg-sh.org/dtkxContent.jsp?artid=5162&colid=470

127 Shanghai Information Office, “This City’s Carbon Emission Market’s Trading Volume Had Exceeded 1 Million Tons.” [Ben shi tanpaifan shichang jiaoyiliang tupo baiwan dun], June 19, 2014. Accessed July 29, 2019. http://www.reg-sh.org/dtkxContent.jsp?artid=5263&colid=470

128 Chen and Reklev, “Shanghai Firms Meet Carbon Targets;” Shanghai Information Office, “Announcement Regarding the Results of the 2013 Allowance Auction.” [2013 niandu pei’e youchang jingjia fafang jingjia jieguo gonggao], June 30, 2014. Accessed July 29, 2019. http://www.reg-sh.org/sousuoContent.jsp?artid=5333

129 IdeaCarbon, “IdeaCarbon Weekly City Market Report June 30–July 4, 2014. Some are happy, some are worried.” [TanDao shichang zhoubao 2014.6.30-7.4 Jia jia huanxi ji jia you]. Accessed July 29, 2019. http://www.ideacarbon.org/news_free/45534/

130 People’s Daily Online, “Shanghai Municipal Government Executive Meeting Points out That the Preliminary Results of the Carbon Emission Trading Pilot Work Show That There Is Still Need to Intensify the Advancement.” [Shanghai shi zhengfu changwu huiyi jiu tanpaifang jiaoyi shidian gongzuo zhichu, xiaoguo chubu xianxian tuijin rangxü jiali] July 31, 2014. Accessed July 29, 2019. http://politics.people.com.cn/n/2014/0731/c70731-25377003.html

131 Other pilots also had percentage compliance rates in the high 90s: see Dong et al., “From Pilot to the National Emission Trading Scheme,” 9.

132 Interviews A–C, E and F.

133 Stensdal, “Norms and Flexibility,” 287.

134 See Zhao et al., “Implementation of Energy-Saving Policies,” 172.

135 Stensdal, “Norms and Flexibility,” 287.

136 Ibid., 284.

137 Heilmann, “From Local Experiments to National Policy,” 1, 29–30.

138 Li, “Self-Motivated versus Forced Disclosure,” 342–343.

139 Shin, “Mission-Driven Agency,” 549–580.

140 See Shin, “Environmental Policy Innovations,” 846.

141 Levine et al., Assessment of China’s Energy-Saving and Emission-Reduction Accomplishments and Opportunities During the 11th Five Year Plan. LBNL-3385E. Berkeley: Ernest Orlando Lawrence Berkeley National Laboratory, 2010, 59.

142 Shin, “China’s Failure of Policy Innovation,” 925–927.

Additional information

Funding

Work on this article was made possible by the Norwegian Research Council’s KLIMAFORSK program, grant number 235588.

Notes on contributors

Iselin Stensdal

Iselin Stensdal is a research fellow at the Fridtjof Nansen Institute, Norway. Her research interests include Chinese climate change, environmental and energy polices, Chinese local governance, and Chinese interests for the Arctic.