Chinese business at the dawn of its domestic emissions trading scheme: incentives and barriers to participation in carbon trading

Abstract

This article explores the incentives and challenges for Chinese business companies in participating in carbon emissions trading schemes (ETSs). Based on extensive interviews with the business managers and government officers who are currently involved in the ongoing policy experiments of pilot ETS programmes across China, the article identifies factors that either motivate or discourage companies in participating in carbon trading activities. It argues that different business groups, i.e. capped enterprises, uncapped enterprises, and carbon intermediaries, are affected by these factors to significantly different extents in terms of formulating their specific carbon strategies. It also illustrates some factors, such as a lack of stakeholder pressure and fragmented political interests, which have a distinctive Chinese character and are believed will have a fundamental impact on the quality and efficiency of Chinese ETSs in the future.Policy relevanceAt the outset, the successful implementation of any ETS depends critically on the active involvement of business actors across various industries. Hence, having an understanding of the business incentives and obstacles in participating in carbon trading is crucial, as these factors will ultimately determine the size and quality of the carbon market, and the total volume and integrity of the GHG emissions to be traded. This article also illustrates the common factors that affect business appetite for carbon trading throughout the world, as well as the factors that are unique to the Chinese political and economic context to constrain business in the market. Finally, a presentation of the business attitude towards the ETS experiment indicates the most worrying aspects of the policy design regarding carbon trading in China. As the construction and implementation of the ETS is a long-term undertaking, such investigation deserves attention from both policy makers and business leaders alike.