China Policy Journal Volume 1, Number 1, Fall 2018 | Page 32

Assessing the Implementation of Local Emission Trading Schemes in China
1. Introduction
The strong interest in using “New
Environmental Policy Instruments”(NEPIs)—including
economic
instruments that emphasize
market incentives and suasive instruments
that encourage voluntary environmental
changes, in contrast to traditional
direct government command
and control (GCAC) approaches, has
been prevalent in developed countries
since 1980s, with numerous academic
studies on their implementation and effectiveness.
However, there is a lack of
evidence illustrating the complexity in
the design and implementation of NE-
PIs in developing countries with limited
monitoring and enforcement resources.
More and more scientific evidence
shows that greenhouse gas
(GHG) emissions contribute to the
global climate change, and emission
trading scheme (ETS) is an important
policy instrument for reducing GHG
emissions that the Kyoto Protocol suggested.
ETS has been used for emission
abatement at the international level such
as the European Union (EU) ETS, at the
country level such as the South Korea
ETS, and at the regional level such as
the Regional Greenhouse Gas Initiative.
Between 2013 and 2014, seven domestic
pilots of ETS were established in
China, including two provincial level
ETSs and five city level ETSs. Since the
end of 2017, China has started to establish
the national ETS. Experiences from
the pilots become important references
for the national ETS.
Following the polluter-pay principle,
ETS creates a market for carbon
dioxide (CO 2
) emission allowances to
encourage the internalization of emission
abatement costs. If the market
functions well, the emission allowance
price can reflect the marginal cost of
emission abatement and encourage enterprises
to adopt low-carbon technologies.
One of the major implementation
concerns is that targeting enterprises
fail to respond in ways anticipated by
policymakers due to low economic incentives
(Weaver 2010). In practice, the
emission allowance price tends to be
low and volatile, hardly reflecting the
real abatement cost. For instance, the
carbon price of EU-ETS once decreased
to almost zero in its first carbon trading
period from 2005 to 2007 (Alberola,
Chevallier, and Chèze 2008). In those
cases, industrial participants would
have little incentives to adopt costly environmental
measures to reduce CO 2
emissions internally.
China is the largest emitter of
CO 2
emissions, mainly caused by its
enormous size of population and economy,
and the high share of coal (more
than 60%) in its energy mix (Olivier et
al. 2015). Although China has no compulsory
GHG reduction obligation in
the Kyoto Protocol, it has committed to
achieving intensity-based targets partly
in response to increasing international
pressures that proceeded the Copenhagen
negotiation. As its INDC for the
Paris Agreement, China promised to
reduce its CO 2
emission intensity by
60%–65% by 2030 in relative to 2005
(NDRC of China 2015). To achieve
the national CO 2
emission reduction
target, China has used many policy instruments
and ETS is one of the most
important ones.
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