Abstract

The recent announcement by President Xi Jinping that China will start a national emissions trading scheme in 2017 can be seen as a genuine game changer. It has given a boost to carbon markets and cap-and-trade as the preferred way forward for those economies that have the capacity, the depth and the breadth for a liquid carbon market.

In addition, Mr Xi’s announcement, made during his official state visit to the US in September, has the potential to alter the tone and substance of the discussions on competitiveness and carbon leakage. This is one of the top issues in the EU and the major component of the July 2015 legislative package published by the European Commission to operationalise the 2030 framework for climate and energy and the October 2014 EU Council Conclusions.

But what does it mean? According to the World Bank report “State and Trends of Carbon Market”, about 23% of the world’s GHG emissions are now under some type of carbon-pricing regime. China’s announcement signals that the world’s secondlargest economy and the largest emitter has decided to put a price on GHG emissions through a cap-and-trade system.