Harnessing market mechanisms to promote sustainable development: Lessons from China

This policy brief examines how China successfully leveraged the Clean Development Mechanism (CDM) to promote sustainable development. It highlights the role of powerful government ministries, coordinated capacity building, and the implementation of specific market restrictions to protect national interests and ensure local benefits.

• China transitioned from being 'slow off the mark' in the early years of the Clean Development Mechanism (CDM) to dominating the market, eventually hosting almost half of all CDM projects.
• The success of the CDM in China is attributed to the involvement of 'heavy-hitting' ministries. The National Development and Reform Commission (NDRC) chaired the Designated National Authority (DNA), ensuring the mechanism was taken seriously, while the Ministry of Finance helped establish the CDM Fund, which holds over US$1 billion to support energy efficiency and environmental protection.
• China employed a coordinated approach to capacity building between 2002 and 2006, using the NDRC and the Ministry of Science and Technology (MOST) as gatekeepers to prevent overlap and ensure donor-funded projects met specific national requirements.
• To protect its interests and promote equitable benefit sharing, China implemented unique restrictions on CDM projects, including a floor price for Certified Emission Reductions (CERs)—which was 8 euros from 2008 until being lowered to 7 euros in early 2012—and a requirement that project entities be Chinese-controlled (foreign shareholding limited to 49%).
• The Chinese government uses a tiered levy system on CER revenue, ranging from 2% to 65%, to fund sustainable development. Renewable energy and energy efficiency projects, which constitute over 90% of registered projects in China, are subject to the lowest levy of 2%, while hydrofluorocarbon destruction projects are taxed at 65%.
• Climate and energy goals have been mainstreamed into China's 5-year plans. The Twelfth Five-Year Plan (2011–2015) includes a carbon intensity reduction goal of 17% and a non-fossil fuel energy mix goal of 11.4% for 2015. These targets influence the promotion and job prospects of local officials and heads of state-owned enterprises.
• In response to the EU Emissions Trading Scheme's Phase III restrictions on CERs, China is developing a domestic emissions trading scheme. Pilot programs began in cities like Beijing and Shanghai in early 2013, with the goal of a nationwide scheme by 2015.

APA

Kinkead, B. (2012). Harnessing market mechanisms to promote sustainable development: Lessons from China. Climate and Development Knowledge Network. https://cdkn.org/sites/default/files/files/China-InsideStory_final_WEB.pdf

Chicago

Kinkead, Belinda. Harnessing market mechanisms to promote sustainable development: Lessons from China. Climate and Development Knowledge Network, 2012. https://cdkn.org/sites/default/files/files/China-InsideStory_final_WEB.pdf.

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=September 2012 |url=https://cdkn.org/sites/default/files/files/China-InsideStory_final_WEB.pdf |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/sites/default/files/files/China-InsideStory_final_WEB.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }