Strengthening China’s Emissions Trading System to Achieve Carbon Neutrality: Introducing Auctions – An Analysis

The rate of emission reductions of the People’s Republic of China (“China”) in the coming decades will be an important factor in the collective global effort to limit global warming in line with the Paris Agreement. China’s National Emissions Trading Scheme (ETS) entered into force in July 2021 and is an important policy instrument to achieve its stated climate ambition of peaking CO2 emissions₂ emissions by 2030 and achieving carbon neutrality by 2060. In this report Strengthening China’s emissions trading system to achieve carbon neutrality: introducing auctions – lessons from international experience, responds to the Chinese government’s invitation to the IEA to cooperate in the field of carbon dioxide emission allowance trading systems. It shows how introducing auctions could strengthen the country’s ETS and help China accelerate its clean energy transition and achieve its climate goals. Drawing on international experience with implementing auctioning of allowances in ETS systems, this report examines policy objectives and outcomes, key design and implementation elements, and the use of auction revenues. It aims to inform policymakers in China and other jurisdictions considering including auctioning of allowances in the design or development of the ETS. It contains a range of policy insights tailored to China’s domestic circumstances, intended to inform the domestic policymaking process.