This study, China's National Emissions Trading Scheme: Integrating cap, coverage and allocation, explains the approach implemented in China's national Emissions Trading Scheme (ETS) to integrate its cap, coverage, and allocation. The combination of top-down and bottom-up approaches is designed in a way that it addresses China's economic, technical and bargaining costs issues. Furthermore, it also discusses the challenges of the implementation of this combined approach and puts forward the relevant policy suggestions.
As the largest CO2 emitter in the world, China is expected to launch its national emissions trading scheme (ETS) in 2017. This will be the world’s largest ETS and is expected to potentially increase the proportion of global GHG emissions covered by carbon pricing initiatives from 13 per cent to between 20% and 25 per cent. The success of China’s national ETS relates to China’s Nationally Determined Contribution (NDC) under the 2015 Paris Agreement, as well as to confidence in, and the development of, global ETSs. To date, inadequate ambition in the setting of caps has been the most obvious failing in the major global ETSs. Among the many design elements of ETSs, coverage and allocation are closely related to cap setting. In theory, and in practice, three approaches are used to determine cap, coverage and allocation: no-cap, top-down and bottom-up. Major global ETSs choose the most appropriate approach based on their different phases and main objectives.
As many studies have discussed, China faces a special social-economic context compared with the ETSs in developed economies. This includes emissions targets framed in terms of emissions intensity instead of absolute amounts of emissions, great uncertainty over the growth of the economy and emissions and official data on emissions that are far from complete. However, many other special issues also need to be clarified during the design of China’s national ETS, in which economic, technical and bargaining cost issues are closely linked with the Chinese situation.