China started seven carbon cap-and-trade pilot programs in order to inform the development of a future national cap-and-trade market. This paper assesses the design of three of the longer-running cap-and-trade pilot programs in Guangdong, Shanghai and Shenzhen. Based on extensive stakeholder interviews and a detailed literature review we formulate a series of recommendations to improve the design of these three pilots, including: strengthening the legal foundations for the cap-and-trade pilots, incorporating achievement of goals established by the cap-and-trade pilots into the performance reviews of participating government officials and executives of state-owned entities, further clarifying the cap-setting process, increasing the transparency of the cap, reducing or eliminating within-compliance period adjustments to enterprise-level allowance allocation, gradually moving away from free allocation toward auctioning, reforming enforcement policy, and adopting a symmetric safety valve to manage prices. By making these recommendations, we hope to shed light on ways that Chinese regulators might adapt cap and trade, a fundamentally market-based tool, to China's economy that has many non-market features.
Workshop/Seminar — Dec 3, 2014
Carbon Cap and Trade in China: From Experimentation to Nationalization?
At this RFF First Wednesday Seminar, RFF’s Clayton Munnings and Richard Morgenstern presented key findings from a recent RFF discussion paper, which assesses the design of three of the pilot programs, in Guangdong, Shanghai and Shenzhen.
Common Resources — Oct 20, 2014
Cap and Trade in China: How Might It Work?
China plans to start a nationwide cap-and-trade market in 2016. But can China, whose economy still contains many nonmarket features, properly desig...
Explainer — Sep 30, 2020
Carbon Pricing 301: Advanced Topics in Carbon Pricing in the Electricity Sector
How can carbon pricing lower emissions in the power sector? This explainer gives an in-depth outline of the central factors.