The People’s Republic of China’s Emissions Trading Scheme: Origins, Characteristics, and Lessons for Greater Asia

The national emissions trading scheme (ETS) of the People’s Republic of China is at an important juncture. China is using the ETS as a tool to bend the country’s emissions curve while cleaning its domestic environment, driving innovation, and capturing a greater share of high-value segments of the global economy. This paper first explores the origins of the ETS, including the seven subnational ETS pilots that formed the foundation of China’s national efforts. It then looks at the characteristics and performance of the national ETS. The paper provides a case study in policy experimentation that is applicable for nascent and prospective markets in developing Asian countries. It focuses on two issues that are germane to the country’s future performance and ability to link with other regional and international markets. The first is the intersection of the national ETS and China’s power sector. The second entails the domestic and international implications of efficiency-based targets. The paper concludes by addressing regional implications directly, focusing on China’s potential to share experiences and capacity with developing markets, through lessons for developing Asian countries in six key areas.

The paper is part of a series of background papers for the Asia-Pacific Climate Report 2024: Catalyzing Finance and Policy Solutions. The inaugural report from the Asian Development Bank offers an overview of the region’s evolving climate landscape, up-to-date public perceptions, and key areas for policy responses.