China's experiment of emission permits trading

This paper identifies the main issues and weaknesses of China's current policy design and practice regarding emission permits trading. China's experiment establishing an emission trading market has advanced progressively for over 10 years covering more than 24 regions. By analyzing the latest official set of trading guidelines issued by the State Council in 2014 and its supplementary laws and regulations, this paper argues that the emission permits trading policy in China is a hybrid framework consisting of multiple policy instruments, each of which is intended to achieve efficiency. However, underlying conflicts among these instruments impair the overall efficiency of the policy and cause a waste of resources, and other problematic designs in this policy framework reduce the necessity and feasibility of emission trading. This paper further examines the emission trading practices in one typical pilot province and provides evidence and explanations of a non-competitive local trading market. In order to make the best use of the power of the market to reduce emissions in China, this paper argues that those issues in policy design should be addressed in the future.