Administration-Led Carbon Markets and China’s Green Transition: Efficiency, Fairness and Rent-Seeking

This paper argues against the claim by Chinese government officials and some scholars that China's carbon emission trading scheme is market-driven. It finds that, in contrast to carbon markets that are characteristic of the marketization model, China's carbon markets are led by the state, and the market mechanism plays a limited role at best. Consequently, China's carbon markets are overwhelmingly challenged by a number of factors. These include the low efficiency of resource allocation, questionable market fairness, rent-seeking, and corruption. This paper argues that the state-led mechanism is not conducive to China's green transition unless a market system is introduced.