China's new national Emissions Trading Scheme has been analysed in-depth for the first time by a team of researchers led by Professor Frank Jotzo from The Australian National University (ANU).
Professor Jotzo, Director of the ANU Centre for Climate Economics and Policy, said China's Emissions Trading Scheme will need to evolve over time to be successful, but it could help China eventually take the lead in the global carbon market.
"China is implementing a policy that was invented in Western market economies but that presently has been ruled out by both the United States and Australia: a market-based mechanism to mitigate global climate change," Professor Jotzo said.
"But there is a long way to go if the Chinese scheme is to become fully effective."
China's national scheme was announced in December 2017 and draws on the experience of seven pilot schemes which have been operating in cities and provinces that reflect the diversity of conditions in China.
Due to commence later this year, the Emissions Trading Scheme will start as an electricity-only scheme before gradually expanding to other industries.
"This is an important first step. However, the scheme will need many improvements over time if it is to be successful.
"There is substantial state involvement in China's energy and industrial sectors, so building the conditions for success for market-based incentives will take time.
"If they are successful, China could well be the leader of the next generation of global carbon markets in industrialising and developing countries."
The article by Professor Jotzo and colleagues from universities in China, Germany, the UK and the United States is published in the journal Nature Climate Change.