China’s Carbon Emission Trading: an Experiment to Watch Closely

This policy brief evaluates China's efforts to establish a domestic carbon trading system during its 12th Five-Year Plan (2011-2015). It describes the transition from top-down command-and-control measures to market-based instruments, highlighting the role of regional pilots and the Clean Development Mechanism (CDM) while identifying significant structural and administrative challenges to achieving a functional national system by 2016.

• China's domestic carbon market is currently in a research-and-development phase with no functional trading yet established, although there is a consensus that such markets are inevitable.
• The Clean Development Mechanism (CDM) has been the primary source of carbon trading in China, with the country acting as the largest seller of offsets, including nearly US$1.3 billion in credits in 2009. However, China is seeking a stand-alone domestic system due to uncertainty regarding the Kyoto Protocol and the limited impact of the CDM on internal competition and total emissions.
• The National Development and Reform Commission (NDRC) launched regional carbon trading pilots in November 2011 across seven locations: Beijing, Shanghai, Tianjin, Chongqing, Shenzhen, Guangdong, and Hubei. These pilots aim for regional operationality by 2014 and a national system by 2016.
• China is exploring sector-based carbon trading, specifically targeting the power sector due to its heavy coal reliance and the building sector, which consumes over 650 million tonnes of coal-equivalent annually.
• Significant obstacles to a functional market include a lack of reliable carbon emission data, insufficient legal infrastructure for emission rights and enforcement, and a shortage of third-party verification companies.
• There is an ongoing debate regarding whether to implement an absolute emissions cap or an intensity-based cap; the latter is considered less controversial as it would not conflict with GDP growth.
• The viability of a carbon market is questioned due to China's lack of a mature free-market economy, characterized by heavy government intervention, state-owned enterprises, non-liberalized price controls, and a culture of distrust in business.

APA

Stockholm Environment Institute (2012). China’s Carbon Emission Trading: an Experiment to Watch Closely. https://www.sei.org/mediamanager/documents/Publications/china-cluster/SEI-PB-2012-China-carbon-markets.pdf

Chicago

Stockholm Environment Institute. China’s Carbon Emission Trading: an Experiment to Watch Closely. 2012. https://www.sei.org/mediamanager/documents/Publications/china-cluster/SEI-PB-2012-China-carbon-markets.pdf.

Wikipedia

{{cite report |author=Stockholm Environment Institute |title=China’s Carbon Emission Trading: an Experiment to Watch Closely |date=2012 |url=https://www.sei.org/mediamanager/documents/Publications/china-cluster/SEI-PB-2012-China-carbon-markets.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{stockholmenvironmentinstitute2012chinas, author = {{Stockholm Environment Institute}}, title = {{China’s Carbon Emission Trading: an Experiment to Watch Closely}}, institution = {Stockholm Environment Institute}, year = {2012}, url = {https://www.sei.org/mediamanager/documents/Publications/china-cluster/SEI-PB-2012-China-carbon-markets.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }