Effectiveness of pilot carbon emissions trading systems in China

China 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 insights

• In 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.