Munnings Clayton, Morgenstern Richard D., Wang Zhongmin, Liu XU

To help overcome the challenge of growing CO₂ emissions, China is experimenting with market-based instruments, including pilot CO₂ emissions trading systems (ETSs) in seven regions that serve as precursors of a national CO₂ ETS. Implementing an ETS in a rapidly growing economy in which government authorities exercise significant control over markets poses many challenges. This study assesses how well three of the most developed pilot ETSs, in Guangdong, Shanghai, and Shenzhen, have adapted carbon emissions trading to China’s economic and political context. It points out instances in which pilot regulators have deftly tailored carbon emissions trading to China’s unique context and instances in which designs are insufficient to ensure smooth operation. It also indicates areas in which broader institutional reforms of China’s political economy may be required for carbon emissions trading to operate successfully.