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Can China find a market solution to its outsize carbon emissions?

Can China find a market solution to its outsize carbon emissions?

China has launched a national carbon emissions trading market to put a price on the most prevalent greenhouse gas. As the world’s largest emitter of carbon, China has drawn global attention for its long-awaited efforts to curb carbon emissions. It has set a goal of reaching peak carbon emissions by 2030 followed by declines in subsequent decades. Its market-based approach to controlling emissions differs from that of other countries in its focus on energy efficiency.

What are carbon trading markets?

Carbon trading markets and carbon taxes are two primary tools governments are increasingly using to reduce carbon dioxide emissions, which constitute 80% of the greenhouse gases that cause global warming. The 2015 Paris Agreement, endorsed by nearly all countries, set a goal of world carbon neutrality by the mid-21st century and limiting global warming to 1.5 degrees Celsius (2.7 degrees Fahrenheit).

On a carbon market (also known as an emission trading system, or ETS), emissions credits are bought and sold at market prices. Governments authorize the number of credits that are available to trade. By decreasing the number of credits, regulators push up the price of carbon and incentivize polluters to emit less.

The world’s 64 carbon trading markets and carbon taxes combined cover 21.5% of global greenhouse gas emissions, up from 15.1% in 2020, according to World Bank data. Much of the increase is due to China’s launch in July of its national ETS, now the world’s largest carbon market.

How does China’s carbon market compare?

China’s ETS – nearly a decade in the making – covers about 30% of its annual greenhouse gas emissions, or 4 billion tons of carbon, spread across more than 2,000 power companies. The market is a step forward for Chinese leader Xi Jinping’s goals of reaching peak carbon emissions in 2030 and net neutrality by 2060.
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