This study explores the price drivers of Chinese Emissions Allowances (CEAs) in the early stage of China’s national carbon market. Using daily time series data from July 2021 to July 2023, we find limited influence from conventional drivers, including energy prices and economic factors. Instead, national power generation emerges as a significant driver. These are primarily due to the distinct institutional features of China’s national carbon market, notably its rate-based system and sectoral coverage. Moreover, the study uncovers cumulative abnormal volatility in CEA prices ranging from 12% to 20% around the end of the first compliance cycle, reflecting sentiments about the policy design and participants’ limited understanding about carbon trading. Our results extend previous literature regarding carbon pricing determinants by highlighting China’s unique carbon market design, comparing it with the traditional cap-and-trade programs, and offering valuable insights for tailored market-based policies in developing countries.

Emissions data collection and management are crucial to operationalizing an emissions trading scheme (ETS). Regulators need high-quality data to allocate emissions allowances and monitor compliance. However, collecting such data can be costly, challenging various actors. Emitters may misreport data, weighing the cost against their interest, while governments may struggle with limited resources in managing compliance. Third-party verification is a solution but tends to be ineffectual and causes new problems unless with sufficient oversight and support. This quality-cost dilemma becomes even more complex in multi-level ETSs, as in China’s national ETS (NETS). Despite increased regulatory efforts to address data challenges, there remains a lack of in-depth legal analysis on the relationship between data quality and cost. This Article establishes a three-element analytical framework—data quality, cost concerns, and intergovernmental relations in data management—to shed light on the nuances of data regulation. Using China’s NETS as a case study, we gain a deeper understanding of the three elements in a specific jurisdiction and the legal institutions, practices, and challenges involved. Governments, emitters, and third-party verifiers each have unique roles and limitations in this process. We suggest legal and regulatory strategies for finding solutions. Our actor-centered analytical model and practical recommendations for the NETS can serve as a valuable guide for jurisdictions facing similar data challenges.

China’s emissions trading system applies a two-stage emissions intensity-based compliance quota allocation scheme different from the cap-and-trade systems prevalent in developed economies. It was designed to accommodate the country’s socioeconomic complexities and implemented following a learning-by-doing approach. Compliance firms significantly expanded green investment and production workforce. Their climate decisions are influenced by state ownership and regional heterogeneity. State-owned enterprises (SOEs) and less liberal market firms increased hiring, but not investment; non-SOEs and more liberal market firms grew investment. There are mixed welfare effects: compliance firms maintained productivity and efficiency; however, ordinary workers’ real wages were reduced, more prominent in SOEs.

This paper examines the impact of the carbon emissions trading scheme (ETS) on directed technological change in the context of Chinese pilot schemes. We focus on firms’ heterogeneity in driving innovation and explore policy variations across pilots. Using a matched difference-in-differences design with a zero-inflated Poisson model, we find that the low-carbon innovation is driven by firms at the intensive margin. On average, a firm files 0.16 additional low-carbon patents annually at the intensive margin. In addition, when looking across pilots, the effect on low-carbon innovation is significant in two pilots, Beijing and Shanghai. We further find that, when looking at firms with different productivity levels measured by output per worker, the pilot ETS encourages low-carbon innovation at the intensive margin but reduces entry into low-carbon innovation at the extensive margin for the more productive firms. Our results suggest that innovation inertia matters, and future policies should encourage smaller firms covered by ETS to start innovation in low-carbon technologies.

Climate change has become mankind’s main challenge. Greenhouse gas (GHG) emissions from shipping are not irresponsible for this, representing 3% of the global total; an amount equal to that of Germany’s emissions. The Fourth Greenhouse Gas Study 2020 of the International Maritime Organization (IMO) predicts that the proportion of GHG emissions from shipping will rise further, as global trade continues to recover and grow, along with the economic development of India, China and Africa. China and the European Union have proposed to include shipping in their carbon emissions trading systems (ETS). As a result, the study of the relationship between the carbon finance market and the shipping industry, attempted here for the first time, is particularly important both for policymakers and shipowners. We use wavelet analysis and the spillover index methods to explore the dynamic dependence and information spillovers between the carbon finance market and shipping. We discover a long-term dependence and information linkages between the two markets, with the carbon finance market being the dominant one. Major events, such as the 2009 global financial crisis; Brexit in 2016; the 2018 China-US trade frictions; and COVID-19 are shown to strengthen the dependence of carbon finance and shipping. We find that the dependence is strongest between the EU carbon finance market and dry bulk shipping, while the link is weaker in the case of tanker shipping. Nonetheless, carbon finance and tanker shipping showed a relatively stronger dependence when OPEC refused to cut production in 2014, and when the China-US trade dispute led to the collapse of oil prices after 2018. We show that information spillovers between carbon finance and shipping are bidirectional and asymmetric. The carbon finance market is the principal transmitter of information. Our results and their interpretation provide guidance to governments on whether (and how) to include shipping in emissions trading schemes, supporting at the same time the environmental sustainability decisions of shipping companies.