Emissions trading in China: New political economy dynamics

Abstract

China has pledged to peak carbon emissions by 2030 and to become carbon neutral by 2060. Achieving the targets would need great improvement of its emissions trading scheme (ETS) that covers half of the country's emissions. Lessons from the European Union have shown that the ETS is not only a product of the changing circumstances, but its implementation and revisions are also continuously affected by the evolving context. Using a political economy perspective, we examine whether the changing environment is also affecting China's ETS. Our analysis centres on two recent contextual dynamics with relevance to the ETS: (1) the change in the ETS authority in 2018; and (2) the impacts of the deteriorating economic environment on the climate-energy policy complex. We find that China's ETS and its broad climate ambitions are still constrained by the tensions between the long-term socio-economic benefits of low-carbon policies and the short-term economic interests behind the government's policy motives, which led to conflicting interests and priorities among regulatory agencies and local governments. The analysis contributes to the political economy debates on emissions trading and China's environmental governance. It also provides practical insights to the policymakers with an in-depth inquiry into the structural barriers to China's net-zero targets.