The impact of adjustment mechanisms on China’s ETS: lessons from the pilot programs

Abstract This article examines the adjustment mechanisms which have been designed and implemented under China’s experimentations with its emissions trading scheme (ETS). In China, several ETS pilot programs have adopted these mechanisms in the process of cap setting, allowance allocation and price regulation to allow regulatory intervention at different stages of the ETS operation to ensure that particular regulatory objectives are going to be achieved. Using doctrinal analysis, this article provides some critical insights into the specific regulatory design of the flexible mechanisms in China. It highlights their impact on regulatory stability and on the credibility of the ETS program. Considering that the ETS pilots are designed for and operated at local levels for the purpose of testing regulatory design and implementation in order to inform the policymakers at the central government when designing the national scheme, the lessons learned from the ETS pilots with respect to the adjustment mechanism are critical to fulfilling this strategy.