choose centralised trading at a single exchange or
decentralised trading at several exchanges.
Fourth, the liquidity of the carbon trading
market needs further improvement. Pilot carbon
trading markets experience the same problem of
poor liquidity, with both low volume and low
turnover.
To overcome these challenges, efforts need to
be made to:
4.2.1 Improve the System of Laws
and Regulations to Increase
Regulatory Capacity
Relevant legislative procedures should be strictly
implemented and the legal system for carbon
trading improved. In particular, the system
design for the national carbon trading market
should be based on experience from pilot
schemes. The rights and obligations of carbon
emission allowance trading participants, trading
methods and rules, dispute resolution mechanisms, type and extent of penalties for violations,
and legal authorisation from jurisdictions should
be clarified—based on the Measures for the
Administration of National Carbon Emission
Trading issued by the NDRC.
Moreover, a regulatory mechanism for a carbon emission allowance trading market should be
established and a dedicated regulatory authority
set up to supervise market operations and participants. The building of a comprehensive risk
control system for the carbon trading market
should be explored to prevent illegal operations
and maintain a well-functioning carbon trading
market. A legal supervisory system covering
various parties—including the government, service providers, trading platforms and businesses
—should be developed. While fulfilling its regulatory role, the government should avoid controlling and commanding the market directly.
Rather, it should focus on macro-policy planning
and supervision and leave the market to play its
intended leading role.
6
4.2.2 Coordinating the Cap and Quota
Structure Correctly
The initial allocation of carbon trading quotas is
a core function of a carbon trading market. The
regional quota cap should be determined by a
combination of factors, including greenhouse gas
emissions, economic growth, industrial structure,
energy structure, and inclusion of the businesses
that fall within the emissions trading scheme.
Some quotas should be reserved for auction, held
in reserve to regulate the market if needed, and
for major projects.
First, the cap should take into account economic growth, technological progress and emissions reduction targets, and follow the principles
of “rigid cap, flexible structure, tight stock and
optimal increment” in the functioning and evolution of the carbon trading market. Given economic volatility and the uncertainty of
technological progress, an adjustment mechanism should be designed to deal with these
uncertainties.
Second, industries vary in their emissions
reduction costs, emissions reduction potential,
competitiveness and carbon leakage effects,
which should be taken into account when
designing industry-specific emissions control
coefficients.
Third, the design of a 3–5-year trading cycle,
early determination of cap and adjustment measures, and a quota-relevant reserve system, are
necessary to meet long-term market expectations
and businesses’ inter-temporal quota management needs and hence reduce compliance costs.
4.2.3 Establish a Unified Trading
Platform and Pricing
Mechanism
A unified carbon trading platform should include
regulatory, trading and support systems. Given
the inconsistencies in trading rules, trading procedures and price control in different carbon
trading markets, it is necessary to improve the
pricing mechanism (Fig. 23).
Auctioning initial carbon emission rights
enables the fair and effective allocation of those
rights. Government can set the minimum price
and businesses can acquire emission allowances
6
Liu Huiping, Song Yan, Challenges for Launching the
National Carbon Emission Rights Trading Market and
Solutions, in Economic Review, 2017, (01):pp.40–45.
30
X. Zhaoyuan and M. Ishwaran
decentralised trading at several exchanges.
Fourth, the liquidity of the carbon trading
market needs further improvement. Pilot carbon
trading markets experience the same problem of
poor liquidity, with both low volume and low
turnover.
To overcome these challenges, efforts need to
be made to:
4.2.1 Improve the System of Laws
and Regulations to Increase
Regulatory Capacity
Relevant legislative procedures should be strictly
implemented and the legal system for carbon
trading improved. In particular, the system
design for the national carbon trading market
should be based on experience from pilot
schemes. The rights and obligations of carbon
emission allowance trading participants, trading
methods and rules, dispute resolution mechanisms, type and extent of penalties for violations,
and legal authorisation from jurisdictions should
be clarified—based on the Measures for the
Administration of National Carbon Emission
Trading issued by the NDRC.
Moreover, a regulatory mechanism for a carbon emission allowance trading market should be
established and a dedicated regulatory authority
set up to supervise market operations and participants. The building of a comprehensive risk
control system for the carbon trading market
should be explored to prevent illegal operations
and maintain a well-functioning carbon trading
market. A legal supervisory system covering
various parties—including the government, service providers, trading platforms and businesses
—should be developed. While fulfilling its regulatory role, the government should avoid controlling and commanding the market directly.
Rather, it should focus on macro-policy planning
and supervision and leave the market to play its
intended leading role.
6
4.2.2 Coordinating the Cap and Quota
Structure Correctly
The initial allocation of carbon trading quotas is
a core function of a carbon trading market. The
regional quota cap should be determined by a
combination of factors, including greenhouse gas
emissions, economic growth, industrial structure,
energy structure, and inclusion of the businesses
that fall within the emissions trading scheme.
Some quotas should be reserved for auction, held
in reserve to regulate the market if needed, and
for major projects.
First, the cap should take into account economic growth, technological progress and emissions reduction targets, and follow the principles
of “rigid cap, flexible structure, tight stock and
optimal increment” in the functioning and evolution of the carbon trading market. Given economic volatility and the uncertainty of
technological progress, an adjustment mechanism should be designed to deal with these
uncertainties.
Second, industries vary in their emissions
reduction costs, emissions reduction potential,
competitiveness and carbon leakage effects,
which should be taken into account when
designing industry-specific emissions control
coefficients.
Third, the design of a 3–5-year trading cycle,
early determination of cap and adjustment measures, and a quota-relevant reserve system, are
necessary to meet long-term market expectations
and businesses’ inter-temporal quota management needs and hence reduce compliance costs.
4.2.3 Establish a Unified Trading
Platform and Pricing
Mechanism
A unified carbon trading platform should include
regulatory, trading and support systems. Given
the inconsistencies in trading rules, trading procedures and price control in different carbon
trading markets, it is necessary to improve the
pricing mechanism (Fig. 23).
Auctioning initial carbon emission rights
enables the fair and effective allocation of those
rights. Government can set the minimum price
and businesses can acquire emission allowances
6
Liu Huiping, Song Yan, Challenges for Launching the
National Carbon Emission Rights Trading Market and
Solutions, in Economic Review, 2017, (01):pp.40–45.
30
X. Zhaoyuan and M. Ishwaran