Introducing Consignment Auctions of Emission Allowances to China’s National ETS

Abstract

China, as one of the most important players in the context of decarbonization, kickstarted its national emission trading schemes (ETS) in 2021, which is a market-based mechanism that puts a price on emission activities so as to incentivize companies to implement new technologies that reduce greenhouse gas emissions in a cost-effective manner. However, there are many issues remain unsettled in China’s National ETS. One of the issues is how to generate a clear carbon price signal in the ETS. This paper argues that the price signal can be improved by implementing an auction mechanism in the distribution of the emission allowance. By analyzing California’s ETS and the challenges that China faces when implementing the standard auction to its ETS, this paper proposes to introduce the consignment auction mechanism as a transition method toward a standard auction so as to improve the carbon price signal in a relatively short term.