Lessons From China’s Seven Regional Carbon Market Pilots
AbstractUnder the dual incentives of climate mitigation and co-benefits, China has launched seven regional carbon market pilots since 2013. The pilots cover all four province-level municipalities (Beijing, Shanghai, Tianjin, and Chongqing), two provinces (Guangdong and Hubei), and one special economic zone (Shenzhen). The total allowances for the seven trading programs add up to 1.2 billion tons of carbon dioxide per year, about 11.4% of national emissions in 2014.
Although the seven regional pilots cover a relatively small share of China’s total carbon emissions, it is a giant step for the world’s largest emitter to test market-based instruments in climate change mitigation. In addition, the seven pilot regions are important provincial/city units in terms of their economic and political clout. The experience and lessons from these pilots will facilitate other subnational units to join in the upcoming national carbon market.
This paper overviews the mechanisms and outcomes of China’s regional carbon market pilots. In particular, we introduce the design of key market elements including selection of pilot regions, emission allowance, covered sectors, allowance allocation, monitoring, reporting and verification, compliance and penalties, and offset market. We assess the performance of the seven carbon markets using publicly available secondary market trading data and explain why different carbon market pilots differ significantly in market performance.