Regulatory institutions and market-based climate policy in China

Domestic regulatory institutions are essential components of emissions trading systems (ETS). Not only do they shape the ways that markets operate, they also condition the environmental value of the carbon credits they produce. However, the literature on global carbon politics has paid little attention to local ETS regulators. In a decentralized system increasingly based on a noodle bowl of diversified environmental markets, the study of carbon markets must integrate the institutions in which they operate. This article focuses on China, which, due to its size, is both keen to and expected to have a significant impact on the global system of market-based instruments. We examine how China’s regulatory institutions have worked to implement the seven ETS pilots launched since 2012, and tease out some implications regarding how China’s national ETS may contribute to global climate change governance. In this study, we analyze both formal and informal regulatory institutions, through the practice of local actors. The main finding is that the tension between the state and markets in China’s ETS implementation has resulted in a reinforcement of state domination rather than the emergence of robust regulatory institutions. The contribution that the ETS makes to China’s emissions reduction is also limited by more pressing environmental and industrial policies that local regulators must prioritize. Local nonregulatory implementation practices could undermine the long-term objective to integrate China’s ETS with others under article 6 of the UNFCCC.