Harnessing market mechanisms to promote sustainable development - Lessons from China

China transitioned from being 'slow off the mark' in the Clean Development Mechanism (CDM) to dominating the market by employing a coordinated capacity-building strategy and strong governmental oversight. Central to this success was the appointment of the National Development and Reform Commission (NDRC) as the Designated National Authority (DNA), ensuring that climate policy was managed by a powerful 'heavy-hitting' ministry rather than a less influential environment ministry. China implemented unique restrictions to protect its interests, including a floor price for Certified Emission Reductions (CERs), revenue levies ranging from 2% to 65% to fund the state-controlled CDM Fund, and requirements for Chinese control of project entities. These experiences have served as a foundation for China's transition toward a domestic emissions trading system, with pilot programs in cities like Beijing and Shanghai starting in early 2013 and a nationwide goal for 2015. Furthermore, China integrated carbon intensity reduction goals into its national 5-year plans, linking the performance of local officials to the achievement of these environmental targets.

• China initially lagged behind Brazil and India in CDM engagement, only issuing its first Host Nation Approval in January 2005 and registering its first project in June 2005, but eventually came to dominate the market with nearly half of all CDM projects.
• The Chinese government ensured efficient use of international aid by using the National Development and Reform Commission (NDRC) and the Ministry of Science and Technology (MOST) as gatekeepers to coordinate capacity-building projects and prevent overlap.
• By appointing the NDRC—a powerful economic ministry—as the chair of the Designated National Authority (DNA), China ensured high-level political commitment and institutional weight that typical environment ministries lack.
• China established a CDM Fund, currently holding over US$ 1 billion, financed through revenue sharing and levies on CERs to provide grants and loans for energy efficiency and environmental protection.
• To protect domestic interests and ensure fair pricing, China implemented a floor price for CERs, which was stable at 8 euros since 2008 before being lowered to 7 euros in early 2012.
• China applied a sliding scale of levies on CER revenue based on the project's sustainable development value: 2% for priority sectors like renewable energy and energy efficiency, 30% for adipic acid nitrous oxide destruction, and 65% for hydrofluorocarbon destruction.
• Climate and energy goals have been mainstreamed into national policy via 5-year plans, with the Twelfth Five-Year Plan (2011–2015) setting a carbon intensity reduction goal of 17% and a non-fossil fuel energy target of 11.4% for 2015.
• China is leveraging its CDM experience to launch a domestic emissions trading scheme, starting with pilot cities such as Beijing and Shanghai in early 2013, with the aim of a nationwide system by 2015.

APA

Kinkead, B. (2012). Harnessing market mechanisms to promote sustainable development - Lessons from China. Climate and Development Knowledge Network. https://cdkn.org/resource/cdkn-inside-story-harnessing-market-mechanisms-to-promote-sustainable-development-lessons-from-china

Chicago

Kinkead, Belinda. Harnessing market mechanisms to promote sustainable development - Lessons from China. Climate and Development Knowledge Network, 2012. https://cdkn.org/resource/cdkn-inside-story-harnessing-market-mechanisms-to-promote-sustainable-development-lessons-from-china.

Wikipedia

{{cite report |last1=Kinkead |first1=Belinda |title=Harnessing market mechanisms to promote sustainable development - Lessons from China |publisher=Climate and Development Knowledge Network |date=20 September 2012 |url=https://cdkn.org/resource/cdkn-inside-story-harnessing-market-mechanisms-to-promote-sustainable-development-lessons-from-china |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{kinkead2012harnessing, author = {Kinkead, Belinda}, title = {{Harnessing market mechanisms to promote sustainable development - Lessons from China}}, institution = {Climate and Development Knowledge Network}, year = {2012}, month = sep, url = {https://cdkn.org/resource/cdkn-inside-story-harnessing-market-mechanisms-to-promote-sustainable-development-lessons-from-china}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }