A Review of the First Three Years Performance of China’s National Emissions Trading Scheme (2021-2024)

The emissions trading scheme (ETS) is regarded as a key market-based policy instrument with the potential to deliver ambitious carbon reduction targets in a cost-effective manner. As the world's largest developing country and carbon emitter, China launched its National Emissions Trading Scheme (China's National ETS) in 2021, following a decade of pilot ETS initiatives that began in 2011. Nevertheless, there is a paucity of literature that systematically reviews and analyses the effectiveness of China's National ETS. The present study aims to address this lacuna by providing a comprehensive summary of the market data of China's National ETS from 2021 to 2024, encompassing market trading volume, carbon emission price, number of eligible market participants, and compliance rate. A comparative analysis and comprehensive evaluation of the results indicates that China's National ETS has advanced from the pilots in three key areas: market liquidity, policy development and regulatory mechanisms. The evidence suggests that this advancement is specifically due to a more unified trading platform, higher market liquidity, and a more complete policy and regulatory framework. However, the study also identified limitations, including insufficient market coverage, leading to low market liquidity, a lack of familiarity with the ETS among eligible participants, leading to market inactivity, an immature MRV system affecting the ETS's credibility, and the current regulatory system failing to impose sufficient penalties for non-compliance. In consideration of the extant limitations, the paper proposes a series of policy recommendations, including the establishment of a road map for the coverage of emissions from the power sector to other remaining sectors, the innovation of carbon finance products and business models, the imposition of stiffer penalties, and the acceleration of the development of a sound legal system and professional talent.