Construction of the National Carbon Market

Carbon emissions trading system (ETS) is an important policy instrument for the international community to address climate change. As an important mechanism to price greenhouse gas emissions, ETS plays a key role in promoting a low-carbon structural transformation of economy and energy, and is adopted by an increasing number of countries and regions. A key feature of ETS is to define the property rights of carbon emissions and therefore internalize the external cost of carbon emissions. The authority determines the amounts of emissions and allowances, and firms obtain allowances from authority under a certain rule and trade them in a secondary market during the compliance cycle. In the end of compliance cycle, covered entities need to surrender the full amount of allowances equivalent to their emissions, or othersise will be subject to penalties. As a result, ETS achieves emission reduction target at a low cost by equalizing the cost of an additional unit of emission reduction across emitters via a market mechanism.

As of 2021, 24 emissions trading systems were in force globally, covering 16%~17% ofglobal greenhouse gas (GHG) emissions, including the European Union Emissions Trading System (EU-ETS), Regional Emissions Trading System (RGGI, US), California’s Carbon Cap-and-Trade System (CCTP, US) and so on. ETS is an important policy tool for the international community to address climate change. Under a carbon trading framework, ETS can help achieve emission reduction targets in a way that minimizes social cost, honor international commitments on climate change and promote low-carbon transformation of energy and economy system.

In order to explore the design of China’s carbon market, China launched pilots in seven provinces and cities, namely Beijing, Tianjin, Shanghai, Chongqing, Shenzhen, Hubei and Guangdong since 2011. In July 2021, China officially launched the national ETS, which took the power generation sector as a breakthrough to carry out the first compliance cycle. The power sector, which accounts for about 40% of China’s total carbon emissions, is the largest carbon emissions sector in China. During the 14th Five-year Plan period, China’s national ETS should strive to cover all the eight key energy-intensive industries, and will introduce permits for auction at an appropriate time. Carbon asset management is related to the economic benefits and social responsibilities of enterprises. As the market continues to improve, major enterprises will actively participate in it and their carbon asset management will be promoted to a strategic height.

Based on the scientific research strengths of Tsinghua University and the rich investment experience of China Three Gorges Corporation, Tsinghua-CTG Joint Center for Climate Governance and Low-carbon Transformation will research the key issues related to mechanisms design of ETS, discuss the linkage of ETSs and Carbon Border Adjustment Mechanism (CBAM), analyze the Monitoring, Reporting, and Verification (MRV) mechanisms of Voluntary Emission Reduction, and put forward the management and operation mode of enterprise carbon asset. The Center is committed to promoting the stable and efficient operation of China's national ETS, providing suggestions on the construction of ETS, and supporting enterprises to build a whole-process carbon asset management model. Through such work, the center aims to help the country respond to global climate change. The main research topics include:

• 1. Key mechanisms design of China's national ETS

Study carbon allowances allocation mechanisms, benchmark design method, and inter-departmental allowances trading mechanisms of China's national ETS; construct an enterprise-level numerical evaluation and analysis framework, evaluate the robustness of MRV system, and study the decision-making and behaviors of market players.

• 2. Linkage of ETSs and CBAM

Study the opportunities and challenges of linkage of ETSs, and analyze new models of enterprises' overseas investment and south-south cooperation on climate change; to track the trend of CBAM, analyze the impact of CBAM on China's foreign trade, macro economy, enterprise competitiveness and other aspects, and put forward feasible countermeasures.

• 3. China's Voluntary Carbon Market

Study the development mode, policy mechanism design and enterprise participation of Voluntary Carbon Market; develop credible and verifiable emission reduction assessment methodologies to improve the core theoretical basis of Voluntary Carbon Market.

• 4. Enterprise Carbon Assets Management

Set up the theoretical framework of the whole-process management of enterprise carbon assets and research the mechanisms of carbon assets development, trading, and offsetting, and based on these, put forward the mode of enterprise carbon assets management.

Links to related policy documents:

Domestic documents:

International climate cooperation and response:

Other carbon trading systems: