Emissions trading systems and social equity: A CGE assessment for China

Carbon Trading: Who Gets What, When, and How?

Optimizing the enterprise inclusion threshold setting of China's national carbon market.

Low carbon growth in China: The role of emissions trading in a transitioning economy

How Will an Emissions Trading System Affect Household Income and Social Equity? A CGE-Based Case Study of China

Over the past four decades, China’s extensive economic growth mode has led to substantial greenhouse gas emissions, and China has become the world’s largest emitter since 2009. In order to alleviate the dual pressures from international climate negotiations and domestic environmental degradation, the Chinese government has pronounced it will reach its emission peak before 2030. However, through analyzing 12 scenarios, we found that it will be very difficult to meet this ambitious goal under the current widely used policies. With the trial implementation of China’s carbon emission trading system (ETS), concerns arise over whether national ETS can accelerate the carbon peak process. In this paper, we propose a new proactive data envelopment analysis approach to investigate the impacts of national carbon ETS on carbon peak. Several important results are obtained. For example, we find that carbon ETS has a significant accelerating effect on carbon peak, which effect will advance the carbon peak by one to 2 years, and the corresponding peak values are reduced by 2.71–3 Gt. In addition, the setting of carbon price in the current Chinese pilot carbon market is found to be overly conservative. Last, our estimation on the carbon trading volume indicates that the ETS lacks vitality as the annual average carbon trading volume only represents approximately 4.3% of the total average carbon emissions. Based on these findings, several policy implications are suggested regarding the means by which China can more smoothly peak its carbon emissions before 2030 and implement national carbon ETS.

An Emissions Trading System (ETS) is a market-based tool for controlling greenhouse gas emissions and has been used by many countries or regions. Built on the results of previous carbon market pilots, China plans to launch a nationwide ETS in 2017. This paper analyzes the main features of China’s National ETS design and the causes of the features, identifies the major issues and challenges that need to be addressed. The National ETS consists of a central-level system and provincial systems. The design not only attaches great importance to the uniformity of trading rules but also provides the provincial authorities a certain degree of autonomy. It sets carbon intensity targets and industrial benchmark based on historical emission rates of industries, issues free emission allowances to corporate legal entities, and includes indirect emissions in the system. The basic statistical unit of the ETS is corporate legal entities. At present, China’s National ETS faces the following major problems and challenges: lack of higher-level legislation; inconsistency in data requirements between the monitoring, reporting and verification (MRV) rules and the benchmarking rules, and lack of effective mechanism to link the ETS to other energy and climate policies. China should pass higher-level legislation for the National ETS as soon as possible, develop operational rules to regulate the allocation of emission allowances, MRV, certification of third-party verification agencies, compliance by companies, trading of emission allowances and other important activities under the ETS, dovetail ETS rules and financial industry supervision and budgeting regulations and develop a mechanism to correlate the ETS and other energy and climate policies.

Economic impacts of an international carbon market in achieving the INDC targets

The green paradox of time dimension: From pilot to national carbon emission trading system in China

As the world's largest emissions trading system (ETS) by covered emissions, China's national ETS has undergone three compliance periods, yet empirical evidence on its effectiveness remains scarce. Based on a nationwide survey, we provide the first comprehensive ex-post evaluation of the system's impacts on regulated enterprises by examining their responses and attitudes. The evaluation covers key dimensions including allowance allocation and compliance, trading behaviour and banking strategies, emissions accounting and reporting, and emission reduction actions. Our findings reveal distinct differences between allowance-deficit and allowance-surplus enterprises in trading strategies, economic performance, and mitigation efforts. The ETS significantly improves enterprises' emissions data accuracy and their carbon management capabilities. Nevertheless, despite increasing compliance pressures due to progressively stringent benchmarks, trading activity remains largely compliance-driven, with block trading within corporate groups prevailing. These patterns hinder market liquidity and undermine the ETS's role in effective price discovery. These findings not only provide critical insights for improving China's national ETS design but also offer broader lessons for other jurisdictions contemplating carbon pricing instruments. Key policy insights Policy uncertainty, including delays in publishing allocation plans and unclear rules regarding allowance validity, increases risk aversion among enterprises, which in turn weakens the effectiveness of China’s national ETS. Block trading significantly restricts market liquidity and undermines the ETS’s price discovery function, highlighting the need for more transparent and regulated trading mechanisms. The rate-based ETS imposes compliance costs on enterprises with allowance deficits, leading to distinct differences in trading strategies, economic performance, and emissions mitigation measures between surplus and deficit enterprises. Despite the adoption of carbon management and mitigation actions, 85% of enterprises remain unaware of their marginal abatement costs, limiting informed decision-making and market participation. A comprehensive approach that goes beyond the design of the national ETS is necessary to enhance its effectiveness and efficiency.

ABSTRACTChina is in the process of establishing a national emissions trading system (ETS). Evaluating the implementation effectiveness of the seven pilot ETSs in China is critical for designing this national system. This study administered a questionnaire survey to assess the behaviour of enterprises covered by the seven ETS pilots from the perspective of: the strictness of compliance measures; rules for monitoring, reporting and verification (MRV); the mitigation pressure felt by enterprises; and actual mitigation and trading activities. The results show that the pilot MRV and compliance rules have not yet been fully implemented. The main factors involved are the lack of compulsory force of the regulations and the lack of policy awareness within the affected enterprises. Most enterprises have a shortage of free allowances and thus believe that the ETSs have increased their production costs. Most enterprises have already established mitigation targets. Some of the covered enterprises are aware of their own internal emission reduction costs and most of these have used this as an important reference in trading. Many enterprises have accounted for carbon prices in their long-term investment. The proportion of enterprises that have participated in trading is fairly high; however, reluctance to sell is quite pervasive in the market, and enterprises are mostly motivated to trade simply in order to achieve compliance. Few enterprises are willing to manage their allowances in a market-oriented manner. Different free allowance allocation methods directly affect the pathways enterprises take to control emissions.Key policy insightsIn the national ETS, the compulsory force of ETS provisions should be strengthened.A reasonable level of free allowance shortage should be ensured to promote emission reduction by enterprises.Sufficient information should be provided to guide enterprises in their allowance management to activate the market.To promote the implementation of mitigation technologies by enterprises, actual output-based allocation methods should be used.The government should use market adjustment mechanisms, such as a price floor and ceiling, to ensure that carbon prices are reasonable and stable, so as to guide long-term low carbon investment.

How will sectoral coverage affect the efficiency of an emissions trading system? A CGE-based case study of China

Emissions, energy and economic impacts of linking China’s national ETS with the EU ETS

China’s national carbon emission trading system (C-ETS) is central to its climate action. Previous studies have largely focused on the unique ETS design and/or regulatory details to determine whether the ETS functions successfully. However, less attention has been paid to crucial questions of how China adapts ETS rules to its unique political, legal, economic, and social contexts; and, given China’s climate ambitions, how those rules will develop in future global climate governance. Adding to discussions on how to design the ETS legal infrastructure, this study takes the world’s largest ETS (C-ETS) as an example to discuss the critical question of what rules should be differentiated and what rules should be harmonized (e.g. in alignment with the arguable prototype EU ETS and/or those of strategic partners). First, by examining China’s general ETS institutional framework, its legal evolution, and related legal disputes, this study highlights a ‘central government-promoted model’ underlying China’s ‘localization’ of ETS rules. A Functional Comparative Legal Analysis Framework is proposed to identify China’s key, distinctive, and long-lasting ETS legal features and to examine their collective potential to provide effective, efficient, and just abatement incentives. Further situating the C-ETS in global climate governance, this study provides insights into the potential future development of China’s ETS rules, with policy priorities that vary across stages. Finally, we draw lessons for other jurisdictions and discuss how our analysis might assist in the transnational understanding and potential coordination of different ETS rules.

Background: The defining challenge of the 21st century is climate change, which has necessitated countries to incorporate financial instruments ranging from carbon tax to the Emissions Trading System (ETS) for emission abatement. China, the world’s biggest CO2 emitter, has implemented an Environmental Protection Tax (EPT) since 2018 and launched a national ETS in 2021. Vietnam, committed to Net Zero by 2050 and currently developing its carbon market, faces significant challenges in strengthening its financial and legal regulations. Methods: This article integrates qualitative methodology and comparative analysis to delineate the nexus between carbon taxation and Emissions Trading Systems (ETS), concomitantly emphasising the human right to a clean environment. The qualitative approach is employed for an in-depth examination of policy, economic, and societal facets within the respective jurisdictions of China and Vietnam. In parallel, comparative analysis serves as the central framework for assessing the efficacy of these two instruments in mitigating greenhouse gas emissions, alongside exploring their potential for synergy and associated challenges. Results and Conclusions: This article seeks to answer the question: In the process of building and perfecting regulations on the emissions trading system and carbon tax, what lessons can Vietnam learn from China's experience to ensure fairness and the right to live in a clean environment? China’s ETS currently covers approximately ≈40% of CO2 emissions, predominantly in the power sector. However, the lack of coordination between the EPT and ETS, low quota price and free allocation of allowances have discouraged investments in low-carbon technologies. Drawing on these lessons, Vietnam should consider adopting a carbon tax to replace the current Law on Environmental Protection Tax. Such legislation should incorporate reasonable provisions such as higher tax rates, flexible adjustment mechanisms, and targeted exemptions or reductions to influence consumer behaviour and reduce reliance on fossil fuels. Furthermore, it is crucial to reform state budget management regulations concerning the utilisation of financial resources derived from carbon taxes and an Emissions Trading System (ETS). These funds should be allocated to finance environmentally friendly agricultural models, mangrove reforestation projects, and the development of irrigation systems resilient to mangrove inundation, thereby promoting environmental protection and long-term livelihood security. Concurrently, establishing a rational long-term roadmap for the development of a national carbon market is essential. This integrated approach, combining both financial instruments, will safeguard Vietnamese citizens' right to live in a clean environment and ensure compliance with the Net Zero commitment by 2050.

The role of output-based emission trading system in the decarbonization of China's power sector