Key Issues on Designing and Implementing Emissions Trading System in China

The mitigation of carbon emissions has been the subject of gradual policy development in the international community during recent years. China, as the world’s most populous and largest developing country, is a large greenhouse gas (GHG) emissions source that grows rapidly in line with its industrialisation and urbanisation. Extensive air pollution within China today, however, is endangering the lives of countless citizens and sapping the nation’s economic vitality. In response, the Chinese government is considering adopting appropriate environmental policy instruments to mitigate emissions, among which emissions trading system (ETS) is of great concern. This article firstly makes a brief introduction to the status quo of China’s emerging carbon market. In this context, two types of ETS are defined and a review of pilot programs on carbon emissions trading in part of China is provided. Before discussing the key elements on designing and implementing ETS in China, the methodology of a multi-criteria approach is explained in Section II, which is used to evaluate this market-based environmental policy instrument throughout the article. In order to develop a scientifically sound, economically rational and politically feasible ETS, key issues including the scope of cap’s coverage, cap setting, system’s point of regulation, allowance distribution methods as well as "cost-containment" mechanisms are identified and discussed in Section III. Finally, an outlook on ETS in China is provided as a brief conclusion on the basis of the above study