Carbon markets must balance stability and adaptability

Posted on 10 April, 2018

The launch of China’s national emissions trading system (ETS) last December marked a major milestone in global efforts to deliver on the Paris Agreement. The addition of China’s ETS means that over seven gigatonnes of carbon dioxide equivalent – roughly 15% of global emissions – are now covered by carbon markets.

China has the world’s biggest power sector and is developing globally significant industries so implementing a successful ETS is a daunting endeavour. However, our latest report by International Carbon Action Partnership (ICAP) on worldwide emissions trading highlights some lessons of older schemes from which China’s ETS architects can learn.

Perhaps the most important conclusion from more than a decade of global ETS experience is that emission trajectories are hard to predict, and circumstances can change in unexpected ways.

This means that carbon markets must strike a balance between stability and adaptability to changing circumstances. This is why the recently concluded reforms in some of the longest-running systems to get these systems ready to meet declared emissions targets in the 2020s are so significant.

As the world’s largest emitter and a key emerging economy, China’s path towards building a successful national carbon market will be of global relevance. If China can get it right, then it will serve as a guide and inspiration for planned emissions trading systems in emerging economies.