Designing Regulation for China’s Emission-Trading Pilot Programs Through Trial and Error: An Effective Approach?

Abstract

This article examines whether ‘trial and error’ is an effective approach to the design of regulations for China’s emission-trading pilot programs. These pilots are designed and operated at local levels for the purpose of testing regulatory design and implementation, with the hope that a national scheme will be built on these experiences. Through an examination of China’s involvement in the Clean Development Mechanism, design and operating principles for emission trading, and China’s regulatory and institutional framework for emission reductions, this article argues that the trial-and-error approach helps the regulatory design of local pilot programs to be adaptive to local circumstances. Such circumstances include local laws, institutional capacities, and developmental priorities. But trial and error also has shortcomings, namely in its capacity to mediate the competing demands of environmental sustainability, commercial viability, financial integrity, and political legitimacy. This article contains lessons for the construction of China’s national emission-trading scheme.