Addressing climate change through a market mechanism: a comparative study of the pilot emission trading schemes in China

  • Yu Zhou
  • Jingjing Jiang
  • Bin YeEmail author
  • Yumeng Zhang
  • Jing Yan
Original Paper


The questions of how to mitigate climate change and its impact on human health are currently high on the Chinese agenda for future development. The emission trading scheme (ETS) has become one of China’s most important instruments to address climate change through a market mechanism. In the wake of the evolution from regional pilots to a nationwide scheme, it is inevitable to be confronted with tremendous political–economic–institutional challenges. To facilitate a smooth start-up of the upcoming nationwide ETS, this study provides a systematic overview of seven ETS pilots, involving the detailed comparison of ETS design and the in-depth evaluation of market performance, both internal and external performance, based on trading data. Then, the achievements and deficiencies of seven ETS pilots are summarized, several challenges for the current time are discussed, and policy proposals for China’s national-level ETS are navigated further coupled with international experience. This study finds that China’s ETS pilots, from the short-term perspective, are successful, especially in the reinforcement of China’s capacity to develop a market-based scheme in an economy that still cherishes many non-market endowments. However, deficiencies lie in both the internal and external market performance, such as the carbon price lacking a signal function, insufficient incentives for compliance, too low market liquidity, and much too high market fragmentation. Moreover, the retrospective examination of China’s ETS pilots suggests that a nationwide ETS should at least be based on an extension of the cap duration from single year to several years, uniform rules on monitoring/reporting/verification and allowance allocation, and the improvement of institutional foundation.


Cap-and-trade China Emission trading scheme pilots Market performance Mechanism design 



This research was financed by China Scholarship Council (Grant No. 201506340061), National Natural Science Foundation of China (Grant Nos. 71803074, 71603110, 71771130), Southern University of Science and Technology (Grant No: G01296001), and Guangdong Provincial Key Laboratory of Soil and Groundwater Pollution Control (2017B030301012).

Compliance with ethical standards

Conflict of interest

The authors declare no conflict of interest.


  1. Chang, K., Chen, R., & Chevallier, J. (2018). Market fragmentation, liquidity measures and improvement perspectives from China’s emissions trading scheme pilots. Energy Economics, 75, 249–260.Google Scholar
  2. Chao, Y., Yao, C., & Ye, M. (2017). Discrete pricing and market fragmentation: A tale of two-sided markets. American Economic Review, 107(5), 196–199.Google Scholar
  3. Chen, R., Cheng, J., Lv, J., Wu, L., & Wu, J. (2017). Comparison of chemical compositions in air particulate matter during summer and winter in Beijing, China. Environmental Geochemistry and Health, 39(4), 913–921.Google Scholar
  4. Chen, W., Li, Y., Huang, G., Chen, X., & Li, Y. (2010). A two-stage inexact-stochastic programming model for planning carbon dioxide emission trading under uncertainty. Applied Energy, 87(3), 1033–1047.Google Scholar
  5. Chen, Y., & Nie, R. (2014). Coordinated development to composite carbon emissions trading market system in Beijing–Tianjin–Hebei region. Economics and Management, 28(2), 16–20.Google Scholar
  6. Chen, Y., Wang, J., Shi, G., Sun, X., Chen, Z., & Xu, S. (2011). Human health risk assessment of lead pollution in atmospheric deposition in Baoshan District, Shanghai. Environmental Geochemistry and Health, 33(6), 515–523.Google Scholar
  7. Cong, R., & Lo, A. Y. (2017). Emission trading and carbon market performance in Shenzhen, China. Applied Energy, 193, 414–425.Google Scholar
  8. Council, S. (2011). Notice of state council on workplan for controlling greenhouse gas emissions during the 12th FYP. Accessed 12 Nov 2018.
  9. Ellerman, A. D., & Wing, I. S. (2003). Absolute versus intensity-based emission caps. Climate Policy, 3(sup2), S7–S20.Google Scholar
  10. Fan, J. H., & Todorova, N. (2017). Dynamics of China’s carbon prices in the pilot trading phase. Applied Energy, 208, 1452–1467.Google Scholar
  11. Garcia-de-Andoain, C., Hoffmann, P., & Manganelli, S. (2014). Fragmentation in the euro overnight unsecured money market. Economics Letters, 125(2), 298–302.Google Scholar
  12. Goulder, L. H., Morgenstern, R. D., Munnings, C., & Schreifels, J. (2017). China’s national carbon dioxide emission trading system: An introduction. Economics of Energy and Environmental Policy, 6(2), 65–72.Google Scholar
  13. Han, F., Cao, J., Peng, L., Bai, H., Hu, D., Mu, L., et al. (2015). Characteristics of hopanoid hydrocarbons in ambient PM10 and motor vehicle emissions and coal ash in Taiyuan, China. Environmental Geochemistry and Health, 37(5), 813–829.Google Scholar
  14. Hu, Y.-J., Li, X.-Y., & Tang, B.-J. (2017). Assessing the operational performance and maturity of the carbon trading pilot program: The case study of Beijing’s carbon market. Journal of Cleaner Production, 161, 1263–1274.Google Scholar
  15. Hwang, S.-H., Park, J.-B., & Lee, K.-J. (2018). Exposure assessment of particulate matter and blood chromium levels in people living near a cement plant. Environmental Geochemistry and Health, 40, 1237. Scholar
  16. Jiang, H., Shao, X., Zhang, X., & Bao, J. (2017). A study of the allocation of carbon emission permits among the provinces of China based on fairness and efficiency. Sustainability, 9(11), 2122.Google Scholar
  17. Jiang, J., Xie, D., Ye, B., Shen, B., & Chen, Z. (2016a). Research on China’s cap-and-trade carbon emission trading scheme: Overview and outlook. Applied Energy, 178, 902–917.Google Scholar
  18. Jiang, J. J., Ye, B., & Ma, X. M. (2014). The construction of Shenzhen's carbon emission trading scheme. Energy Policy, 75, 17–21.Google Scholar
  19. Jiang, M. (2015). Difficulty to promote the ETS in BeijingTianjinHebei region: Advanced emission reduction technology is the key. Accessed 15 Aug 2018.
  20. Jiang, W., Liu, J., & Liu, X. (2016b). Impact of carbon quota allocation mechanism on emissions trading: An agent-based simulation. Sustainability, 8(8), 826.Google Scholar
  21. Jotzo, F., Karplus, V., Grubb, M., Löschel, A., Neuhoff, K., Wu, L., et al. (2018). China’s emissions trading takes steps towards big ambitions. Nature Climate Change, 8(4), 265.Google Scholar
  22. Jotzo, F., & Löschel, A. (2014). Emissions trading in China: Emerging experiences and international lessons. Amsterdam: Elsevier.Google Scholar
  23. Kuik, O., & Mulder, M. (2004). Emissions trading and competitiveness: Pros and cons of relative and absolute schemes. Energy Policy, 32(6), 737–745.Google Scholar
  24. Liu, L., Chen, C., Zhao, Y., & Zhao, E. (2015). China's carbon-emissions trading: Overview, challenges and future. Renewable and Sustainable Energy Reviews, 49, 254–266.Google Scholar
  25. Liu, Y., Feng, S., Cai, S., Zhang, Y., Zhou, X., Chen, Y., et al. (2013a). Carbon emission trading system of China: A linked market vs. separated markets. Frontiers of Earth Science, 7(4), 465–479.Google Scholar
  26. Liu, Z., Guan, D., Crawford-Brown, D., Zhang, Q., He, K., & Liu, J. (2013b). Energy policy: A low-carbon road map for China. Nature, 500(7461), 143.Google Scholar
  27. Munnings, C., Morgenstern, R. D., Wang, Z., & Liu, X. (2016). Assessing the design of three carbon trading pilot programs in China. Energy Policy, 96, 688–699.Google Scholar
  28. NDRC. (2011). Notice of the general office of the NDRC on launching pilot emission trading schemes. Accessed 12 Nov 2017.
  29. NDRC. (2017). Notice of the General Office of the NDRC on national emission trading scheme construction plan (power generation industry). Accessed 12 Jan 2018.
  30. Rannou, Y., & Barneto, P. (2016). Futures trading with information asymmetry and OTC predominance: Another look at the volume/volatility relations in the European carbon markets. Energy Economics, 53, 159–174.Google Scholar
  31. Song, Y., Liang, D., Liu, T., & Song, X. (2018). How China’s current carbon trading policy affects carbon price? An investigation of the Shanghai emission trading scheme pilot. Journal of Cleaner Production, 181, 374–384.Google Scholar
  32. Tan, X., & Wang, X. (2017). The market performance of carbon trading in China: A theoretical framework of structure-conduct-performance. Journal of Cleaner Production, 159, 410–424.Google Scholar
  33. Tian, H., & Whalley, J. (2009). Level versus equivalent intensity carbon mitigation commitments. National Bureau of Economic Research.Google Scholar
  34. Varshney, P., Saini, R., & Taneja, A. (2016). Trace element concentration in fine particulate matter (PM2.5) and their bioavailability in different microenvironments in Agra, India: A case study. Environmental Geochemistry and Health, 38, 593. Scholar
  35. Wang, B., Jotzo, F., & Qi, S. (2018a). Ex-post cap adjustment for China’s ETS: An applicable indexation rule, simulating the Hubei ETS, and implications for a national scheme. Climate Policy, 18(2), 258–273.Google Scholar
  36. Wang, S., Jiang, J., Zhou, Y., Li, J., Zhao, D., & Lin, S. (2019). Climate-change information, health-risk perception and residents’ environmental complaint behavior: An empirical study in China. Environmental Geochemistry and Health. Scholar
  37. Wang, Y., Zhao, H., Duan, F., & Wang, Y. (2018b). Initial provincial allocation and equity evaluation of China’s carbon emission rights—Based on the improved TOPSIS method. Sustainability, 10(4), 982.Google Scholar
  38. Wang, Z., & Wang, C. (2015). How carbon offsetting scheme impacts the duopoly output in production and abatement: Analysis in the context of carbon cap-and-trade. Journal of Cleaner Production, 103, 715–723.Google Scholar
  39. Wu, L., Qian, H., & Li, J. (2014). Advancing the experiment to reality: Perspectives on Shanghai pilot carbon emissions trading scheme. Energy Policy, 75, 22–30.Google Scholar
  40. Xiong, L., Shen, B., Qi, S., Price, L., & Ye, B. (2017). The allowance mechanism of China’s carbon trading pilots: A comparative analysis with schemes in EU and California. Applied Energy, 185, 1849–1859.Google Scholar
  41. Yang, B., Liu, C., Su, Y., & Jing, X. (2017). The Allocation of carbon intensity reduction target by 2020 among industrial sectors in China. Sustainability, 9(1), 148.Google Scholar
  42. Zaghini, A. (2016). Fragmentation and heterogeneity in the euro-area corporate bond market: Back to normal? Journal of Financial Stability, 23, 51–61.Google Scholar
  43. Zeng, S., Xu, Y., Wang, L., Chen, J., & Li, Q. (2016). Forecasting the allocative efficiency of carbon emission allowance financial assets in China at the provincial level in 2020. Energies, 9(5), 329.Google Scholar
  44. Zhang, D., Karplus, V. J., Cassisa, C., & Zhang, X. (2014). Emissions trading in China: Progress and prospects. Energy Policy, 75, 9–16.Google Scholar
  45. Zhang, J., Wang, Z., & Du, X. (2017). Lessons learned from China’s regional carbon market pilots. Economics of Energy and Environmental Policy, 6(2), 19–38.Google Scholar
  46. Zhang, Z. (2015). Carbon emissions trading in China: The evolution from pilots to a nationwide scheme. Climate Policy, 15(sup1), S104–S126.Google Scholar
  47. Zhao, X.-G., Jiang, G.-W., Nie, D., & Chen, H. (2016). How to improve the market efficiency of carbon trading: A perspective of China. Renewable and Sustainable Energy Reviews, 59, 1229–1245.Google Scholar
  48. Zhao, X.-G., Wu, L., & Li, A. (2017). Research on the efficiency of carbon trading market in China. Renewable and Sustainable Energy Reviews, 79, 1–8.Google Scholar
  49. Zhou, Y., Fan, J., Zhao, D., & Wang, S. (2016). The impact of carbon trading on regulated agents in China. Mitigation and Adaptation Strategies for Global Change, 21(3), 377–390.Google Scholar
  50. Zhou, Y., Hong, J., Zhu, K.-J., Yang, Y., & Zhao, D.-T. (2018). Dynamic capability matters: Uncovering its fundamental role in decision making of environmental innovation. Journal of Cleaner Production, 177, 516–526. Scholar
  51. Zhou, Y., Jiang, J.-J., Ye, B., & Hou, B.-J. (2019). Green spillovers of outward foreign direct investment on home countries: Evidence from China’s province-level data. Journal of Cleaner Production, 215, 829–844. Scholar
  52. Zhou, P., Zhang, L., Zhou, D., & Xia, W. (2013). Modeling economic performance of interprovincial CO2 emission reduction quota trading in China. Applied Energy, 112, 1518–1528.Google Scholar

Copyright information

© Springer Nature B.V. 2019

Authors and Affiliations

  • Yu Zhou
    • 1
  • Jingjing Jiang
    • 2
  • Bin Ye
    • 1
    Email author
  • Yumeng Zhang
    • 3
  • Jing Yan
    • 4
  1. 1.School of Environmental Science and EngineeringSouthern University of Science and TechnologyShenzhenChina
  2. 2.School of Economics and ManagementHarbin Institute of Technology (Shenzhen)ShenzhenChina
  3. 3.Department of Electrical and Computer EngineeringUniversity of California, DavisDavisUSA
  4. 4.Institute of Urban and Rural EconomicsAnhui Academic of Social SciencesHefeiChina

Personalised recommendations