Making Sense of Carbon Market Development in China

Abstract

China has recently begun promoting market-oriented policy instruments to reduce carbon emissions as part of its domestic climate strategy. A centerpiece of this new policy approach has been the launch of pilot carbon markets in seven distinct regions. Based on extensive field visits to all pilot markets under development, this analysis assesses the implications of this “bottom-up” approach to carbon market development for the prospects for nationwide carbon trading in China. It concludes that initiating carbon trading in the seven regions across China with insufficient capacity building, an extremely compressed time frame, and little bureaucratic coordination has engendered challenges for the development of a national carbon market. Nevertheless, these pilots have advanced the prospects for sustained climate action in China at the local level through their contribution to indigenous technical and human capacity as well as through engaging new stakeholders, including domestic and international actors, supportive of the development of an eventual national trading scheme.