Moving Steadily or Great Leap Forward? The Emerging Carbon Market in China

Abstract

China has become a large greenhouse gas (‘GHG’) emissions source due to its rapid industrialisation and urbanisation. Given the heavy environmental footprint caused by China’s economic growth, the Chinese government has recognised the need to control carbon emissions and mitigate climate change. Indeed, China has made remarkable progress in reducing its energy consumption per unit of gross domestic product (‘GDP’). However, these improvements are mainly the result of the most readily available abatement options. Given that simple solutions have almost been exhausted, cost-effective market-based instruments such as carbon emissions trading and carbon markets have become the focus of the Chinese leadership’s attention and have begun to emerge and develop in China. At this stage the primary issue that must be considered by the Chinese government is how to implement an emissions trading scheme (‘ETS’) — whether to adopt such a new environmental policy instrument step by step in an evolutionary manner or whether to fully implement it instantly in a revolutionary way. This article considers the future direction of an emerging carbon market in China. It first provides a comprehensive and up-to-date review of current pilot ETS programs in China. Based on the review of these programs, China’s pilot ETS programs and the well-established European Union Emissions Trading Scheme (‘EU ETS’) are compared. The improvements made by, and the shortcomings of, these pilot programs (which could be considered by the Chinese government in choosing an appropriate development model of the ETS in the near future) are summarised. The article concludes by assessing the prospects of an ETS in China.