Yesterday, China’s National Development and Reform Commission launched China’s national Emissions Trading System (ETS), with approval from the State Council. The launch, which fulfills a commitment first made by President Xi Jinping in September 2015, is a major milestone in China’s efforts to fight climate change, and a significant step towards a clean energy future. The launch and continuous improvement of the ETS is part of an expanding market-oriented reform in China, which is a long-term and time-pressing process with high political endorsement. The national ETS sends a clear signal that emitters will be held accountable for their carbon pollution. The ETS compliance cycle will create a valuable system for collecting company-level carbon emissions data—a foundation for developing and improving many other carbon policies.

The initial ETS, which will include China’s power sector, is already the world’s largest carbon trading system, covering around a third of China’s total carbon emissions (approximately 3.3 billion tonnes annually). For comparison, the European Union’s ETS system covers 2 billion tonnes, while California’s carbon market covers 394.5 million tonnes. In the coming years, the ETS is will include eight sectors of China’s economy, representing 40 percent of the country’s emissions.

We expect China’s national ETS to require careful monitoring and support to optimize and harmonize with China’s other climate policies. In particular, improvements will be needed to enhance the national ETS’ legal foundation, allocation methodologies, and data quality. This is a proud moment for China in realizing its ongoing transformation to a clean energy economy.  

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