A Linkage Framework for the China National Emission Trading System (CETS): Insight from Key Global Carbon Markets

Abstract

Given that international collaborative efforts to reduce greenhouse gas (GHG) emissions are urgent and crucial, a critical understanding of challenges and opportunities of linking China’s newly established national ETS with existing domestic or regional ETSs is essential in order to achieve global emission targets, and may attract other jurisdictions to join in global carbon market development. In this backdrop, we analyzed the experiences, lessons, and insights from three key global carbon markets, namely North America, the EU and China, in terms of the barriers to linking the global carbon market, with a focus on China, using thematic analysis. The four most commonly cited linkage design elements (barriers) were the legal basis; monitoring, reporting, and verification; political feasibility; and the price-management mechanism. Like-minded jurisdictions with similar political views and design features will have a higher chance of linking. Additionally, sustaining market liquidity, widening sectoral coverage, minimizing carbon leakage, ensuring offset quality, and a transparent allowance and cap setting rules are crucial steps towards linkage. These outcomes can be used as an ETS linkage-ready design framework for CETS and ETS under development to overcome barriers to future international ETS linkages.