China's Carbon Market: Potential for Success?

Abstract

What lessons emerged during the development of China's national emissions trading scheme (ETS)? It was launched in late 2017 and started operation in July 2021, beginning with online trading of emissions permits. The preceding decade was used for preparing and testing, including seven pilot markets. It was decided to start with the power sector, the largest-emitting sector, and initially cover coal- and gas-fired power plants. This article offers theory-oriented and empirical contributions to domestic-level learning, and asks what happens after a policy has "landed". We employ an analytical concept originating from diffusion theory-learning - and view internal learning as a key mechanism. We argue that having a slow and well-prepared start contributes to the potential success of the ETS; further, that the lengthy preparatory period enabled China to address various obstacles, providing a strong basis for success, singly and as part of the national mitigation policy complex. Internal learning has proven crucial to the development of the ETS in China, with the learning process continuing as the national ETS becomes operative. We also discuss the possibilities for linking China's carbon market with other markets, which should heed China's ETS experience and emphasize learning.