Oliver Kaltenegger

WWU Münster Prof Löschel’s commentary in Nature Climate Change on China’s market-based ambitions to cutting greenhouse gas emissions

China’s climate pledge as part of the Paris Agreement is to reduce the CO2 emissions intensity of the economy and to stop the rise in absolute CO2 emissions. To date, China has used a mix of different policy instruments relying mainly on direct state interventions. At the same time, there has been a broader drive towards greater “marketization” of China’s economy and the introduction of a market-based climate policy instruments should be seen in this context. After seven (local and regional) pilot emissions trading schemes (ETS), the national scheme announced in December 2017 implies a long start to market-based emissions trading on a national scale.

China’s national ETS has many particular features. It will start with a trial run (“simulation”) for the electricity sector. Around 2020 the scheme is intended to operate fully in the electricity sector and then gradually expand to other industries, finally covering about half of China’s total CO2 emissions. While most existing ETS have caps that define how many emissions allowances will be issued to market participants, the emissions limit in China’s ETS is set to vary with the production volume of firms covered by the ETS. In the same way, China is opting for output-based allocation of free permits.

China’s ETS will need to evolve if it is to play a significant role in overall efforts to cut emissions. Löschel and his colleagues identify several aspects of change necessary for the system to become more effective and efficient over time and discuss global implications.

Read the comment in Nature Climate Change here.