Integrity of firms' emissions reporting in China's early carbon markets

The integrity of greenhouse gas emissions data is essential to assess progress towards countries' pledges under the Paris Agreement on climate change. Building credible systems for emissions measurement, reporting and verification is challenging, especially in developing countries. Using a unique dataset from two of China's pilot emissions trading systems (Beijing and Hubei), we compare firms' self-reported CO2 emissions with emissions verified by third parties ('verifiers'). In Beijing, we find that the average discrepancy fell by statistically significant levels (from 17% in 2012 to 4% in 2014 and 2015), while in Hubei it started lower and showed a statistically insignificant decrease (from 6% in 2014 to 5% in 2015). We observe no evidence of deliberate misreporting in these two pilots, and show that improvements in firms' reporting capacity are associated with discrepancies of decreasing magnitude in Beijing. The results suggest that the administrative and firm capabilities required to support emissions trading systems in developing countries will require substantial time and effort to build.