China will transform global carbon emissions trading

Subject

China's plans for a national carbon emissions trading scheme (ETS).

Significance

China will launch a nationwide emissions trading scheme (ETS, also known as 'cap-and-trade') by mid-2017. It will be the largest ETS in the world, and a significant step towards fulfilling the pledges that Beijing made in the Paris Agreement. However, the seven pilot schemes that form the basis of the ETS highlight likely difficulties, which are inherent to China’s political economy.

Impacts

• The ETS is a step towards China assuming global leadership in combatting climate change.
• The prospect of linking up with China's ETS may incentivise other emerging economies to adopt their own.
• Regulatory institution-building will be necessary when China wants to link its ETS with other schemes in the longer term.
• Foreign companies operating in China in the affected sectors may face new compliance obligations.