It finds that China’s domestic carbon emission market is still in the research-and-development stage. There is strong momentum, but no functional carbon trading has emerged yet. Still, there is a growing consensus that the emergence of domestic carbon markets in China, sooner or later, is inevitable.

The carbon trading that does occur in China now is almost exclusively under the Clean Development Mechanism (CDM). China has been the biggest seller of carbon offsets through the CDM system, selling nearly 1.3 billion USD in credits in 2009 alone. However, the rejection of several recent Chinese proposals, combined with uncertainty over the future of the Kyoto Protocol, has made China reluctant to depend significantly on the CDM, politically and economically, for international low-carbon finance.

The coming five years will test the future of carbon markets in China. With the seven regional carbon trading pilots and potentially other sectoral based pilots initiating during the 12th Five Year Plan (FYP) period, China will be moving into an intensive phase of testing carbon trading domestically. The outcome of those experiments will, to a large extent, determine the future of carbon markets development in China.

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Read the full report, China’s Carbon Emission Trading: An Overview of Current Development , by Guoyi Han, Marie Olsson, Karl Hallding and David Lunsford »