China’s carbon market is approaching a pivotal transformation, driven by ambitious policy reforms and the global imperatives of carbon pricing. A groundbreaking new study authored by Professors Dai and Pollitt offers a comprehensive analysis addressing the intricate alignment between China’s local pilot carbon markets and the emerging national unified carbon market. Published in the journal Energy and Climate Management, this research boldly navigates the complexities imposed by global mechanisms like the European Union’s Carbon Border Adjustment Mechanism (CBAM), presenting a sophisticated blueprint for enhancing China’s market efficiency and international regulatory standing.
The study systematically evaluates a comprehensive dataset comprising 346 policy documents alongside insights derived from 22 expert interviews. The analytical depth of this research reveals critical factors underpinning the integration challenges of China’s carbon markets. Central to its argument is the assertion that multi-level coordination—not mere national market expansion—stands as the most potent strategy for reducing carbon emission costs and propelling green technological innovation. This perspective challenges prevailing assumptions about prioritizing domestic reforms or purely technological upgrades in carbon market development.
A dominating theme in this research is the tension created by the EU’s CBAM, which has set a stringent 2034 deadline for China to fully mature its national carbon trading mechanisms. This international regulatory pressure brings opportunities for China to assert leadership yet also exposes gaps, particularly in Measurement, Reporting, and Verification (MRV) systems. The study highlights these MRV limitations as critical bottlenecks impeding China’s progress toward a reliable, scalable carbon market capable of meeting international standards and investor confidence levels.
Intriguingly, the research defends the existing “dual-track coexistence model,” wherein local pilot markets retain indispensable functions often underestimated within broader policy debates. These local markets innovate across three fundamental domains: they integrate small and medium-sized enterprises, pioneer carbon financial instruments, and act as regulatory testbeds. Such “triple innovation functions” are argued to be indispensable not only for fostering market diversity but also for generating scalable innovations to be adopted at the national level, thus ensuring a resilient and adaptive carbon market ecosystem.
Fundamental to the study is its critical examination of dominant narratives shaping Chinese carbon policy. The authors dismantle the “domestic priority” hypothesis, which assumes that CBAM mainly functions as a catalyst for internal reform. Similarly, they dispute the “system priority” belief that seamless local pilot progression naturally breeds comprehensive national legislation. Additionally, the notion of “technological determinism”—which elevates political recognition over grassroots technological innovation—is shown to be overly simplistic. Instead, the study proposes a nuanced understanding where the synergy between multi-tiered market structures achieves more tangible outcomes.
Not only is this analysis academically significant, but it also arrives at a crucial inflection point in policy evolution, coinciding with recent directives issued by China’s Central Committee and State Council. These governmental documents underscore explicit carbon market objectives for 2027 and 2030, signaling an era of intensified state support and market integration. By July 2025, the nation’s carbon market recorded a cumulative trade volume of 681 million tons and an astonishing transaction value nearing 47 billion yuan, reflecting aggressive expansion and near-total compliance from over two thousand key emission units scheduled for 2024 inclusion.
Technically, the research foregrounds the urgent need to upgrade MRV frameworks, describing them as the backbone of market transparency and credibility. Accurate emissions data are indispensable for effective carbon pricing, market stability, and risk management. Without robust MRV infrastructure, pricing signals can become distorted, undermining both investor confidence and regulatory enforcement. The coordinated efforts to synchronize MRV processes across local and national levels will be pivotal in meeting both domestic sustainability targets and international obligations shaped by climate diplomacy.
Furthermore, the study illuminates the strategic potential embodied in carbon financial markets, where innovative instruments—such as carbon futures and derivatives—can mitigate financial risk and attract capital. Local pilot markets have been particularly proficient at experimenting with these mechanisms, offering valuable lessons for national market design. By fostering these financial innovations, China can deepen market liquidity, reduce volatility, and stimulate private-sector participation in emission trading schemes.
On the regulatory front, the research points to the importance of adaptable governance structures. Local pilot markets serve as laboratories for testing new regulatory frameworks and compliance mechanisms. Their experimental nature enables policymakers to assess the effectiveness of different regulatory strategies, ensuring that national legislation is both flexible and enforceable. This iterative process enhances governance resilience, allowing for course corrections amid the unpredictable dynamics of carbon markets and climate policy.
The international dimension remains a potent driver in the research analysis. The EU’s CBAM does not merely impose external pressure but also lays down a framework for China to align its carbon market with global standards. Establishing interfaces that accommodate external engagement is emphasized as a strategic priority. Such international interoperability could facilitate cross-border trading, harmonize carbon pricing signals, and enhance China’s role as a global climate governance actor.
Importantly, the authors envision an ultimate carbon pricing mechanism capable of inspiring profound emission reductions while maintaining a stable, reasonable pricing environment. This balanced approach ensures that carbon costs function as effective incentives for emission control without imposing excessive economic burdens. Achieving such a mechanism requires meticulous policy coordination, transparent market operations, and continuous stakeholder involvement, all deeply embedded in the evolving institutional framework of China’s carbon market.
The transformative potential of this research extends beyond policy prescriptions to influence the broader discourse surrounding green industrial transformation. By positioning carbon markets as key facilitators for industry decarbonization and the development of new low-carbon productive capacities, the study reframes emission trading systems as engines of economic modernization. This approach harmonizes environmental objectives with economic growth imperatives, thus supporting China’s dual carbon goals of peak emissions and carbon neutrality.
As China stands at the cusp of this new carbon market phase, the lessons articulated by Professors Dai and Pollitt offer essential compass points for both policymakers and market participants. Their emphasis on multi-level coordination, MRV enhancement, international integration, and market innovation sets a rigorous agenda for the ongoing evolution of carbon pricing. This study not only clarifies the challenges but also charts an actionable course toward a more robust, globally influential Chinese carbon market, poised to contribute substantively to global climate resilience.
Subject of Research: Coordination and integration of China’s local pilot carbon markets with its national unified carbon market under the influence of global carbon pricing mechanisms like the EU Carbon Border Adjustment Mechanism (CBAM).
Article Title: Aligning China’s local and national carbon markets under global carbon pricing
News Publication Date: 20-Aug-2025
Web References: DOI Link
Keywords: China carbon market, carbon pricing, EU CBAM, Measurement Reporting Verification (MRV), local pilot carbon markets, carbon financial innovation, emission trading system, green innovation, carbon governance, climate policy, carbon market integration, global carbon pricing
