The newly released research offers a detailed and multi-dimensional exploration of China’s carbon market integration, combining the analysis of 346 policy documents with 22 expert interviews. This empirical foundation allows the study to bridge policy design, institutional reform, and international alignment. Its overarching objective is to guide the coordination of the evolving local pilot carbon markets with the national unified system. The authors stress that effective integration must not merely consolidate administrative structures but should also deepen market efficiency, reduce emission abatement costs, and stimulate green innovation through competition and technological advancement. By positioning China’s carbon market reform within the global transition toward carbon neutrality, the research makes a compelling case for the use of market mechanisms as the principal means to balance growth with sustainability.

Against the backdrop of intensifying global carbon governance, particularly through mechanisms like the European Union’s Carbon Border Adjustment Mechanism (CBAM), China’s carbon market stands at a critical juncture. CBAM, which imposes a levy on carbon-intensive imports, compels major economies, including China, to accelerate domestic carbon pricing reforms to maintain competitiveness. In this context, the study—jointly led by Professor Dai and Professor Pollitt—serves as a strategic blueprint for harmonising the regional carbon pilots with the national system. It highlights both the opportunities for China to lead in global climate governance and the challenges associated with aligning its policies to international norms of transparency and accountability. The researchers argue that China’s carbon market integration process is not simply a domestic economic reform, but a fundamental step in redefining its role within the international carbon economy.

Nevertheless, the study identifies several enduring structural and technical bottlenecks impeding the rapid expansion of China’s national carbon market. Chief among these are challenges related to Measurement, Reporting, and Verification (MRV) systems, which remain inconsistent across regions and sectors. The integrity of MRV is crucial to the credibility of emissions data, carbon pricing accuracy, and the overall trustworthiness of the market. The report also notes that while the EU’s CBAM sets a 2034 deadline for the maturation of China’s carbon trading infrastructure, achieving this will require substantial improvements in institutional capacity and standardisation. Yet, the authors are careful to point out that local pilot carbon markets continue to play an irreplaceable role through what they term “triple innovation functions” within a “dual-track coexistence model”: extending participation to small and medium enterprises, encouraging the development of carbon financial products, and serving as testing grounds for regulatory innovation.

The lead author of the study challenges three conventional assumptions often associated with China’s carbon market reform. First, the “domestic priority” assumption suggests that external pressures like CBAM primarily drive internal reform; second, the “system priority” notion assumes that local pilots exist only to support national-level legislation; and third, “technological determinism” posits that technological advancement or political endorsement alone can ensure market success. The authors contend that none of these are sufficient on their own. Instead, they propose that actual progress depends on the coordinated evolution of multi-level markets—local, regional, and national—that interact symbiotically rather than hierarchically. The national market should not seek to replace local pilots but rather integrate their innovative potential into a cohesive national framework that fosters adaptability, competition, and continuous learning.

From a policy standpoint, the study highlights why this research is essential for readers, policymakers, and investors alike. It positions the carbon market as a key instrument in China’s broader decarbonisation strategy—one capable of transforming traditional industries while spurring the growth of new low-carbon sectors. The researchers argue that as international carbon pricing systems like CBAM come into effect, China must expedite its own integration process to safeguard its industrial competitiveness and achieve its “dual carbon” goals—peaking emissions before 2030 and achieving carbon neutrality by 2060. The study portrays carbon trading not just as an environmental policy but as an economic reform that can reshape production systems, incentivise green investment, and redefine China’s comparative advantage in a carbon-constrained global economy.

A significant finding of the research is the continued value of maintaining regional pilot carbon markets as laboratories of innovation. Rather than viewing them as transitional mechanisms destined for absorption into a centralised market, the authors argue that these pilots perform indispensable experimental functions. They enable the testing of carbon financial products, allow smaller enterprises to participate, and create space for flexible regulatory design. Such decentralised experimentation, when properly coordinated with the national system, can enrich China’s overall policy toolkit. By fostering competition between regional models and encouraging local innovation, the dual-track system enhances the robustness and resilience of the carbon market. This approach could serve as a model for other developing countries seeking to balance central oversight with local autonomy in the design of carbon pricing mechanisms.

Looking forward, the study recommends that China focus on three critical next steps: strengthening its MRV infrastructure to ensure transparency and data reliability, improving coordination between national and provincial policymakers, and aligning its carbon market governance with international best practices. The authors envision a future in which China operates a carbon pricing system characterised by measurable emission reductions, predictable price levels, and strong regulatory integrity. Such a system would allow China to emerge as a significant global hub for carbon trading, influencing international carbon prices and policy norms. The timing of this research is critical. It coincides with new national directives issued by the General Office of the CPC Central Committee and the State Council, which outline ambitious carbon market targets for 2027 and 2030. By mid-2025, China’s national carbon trading market had reached a cumulative transaction volume of 681 million tonnes and a total value of 46.784 billion yuan, with nearly full compliance among the 2,096 key emission units included. These achievements reflect steady progress but also underscore the importance of sustained reform. The researchers conclude that their findings should serve as an essential reference for policymakers seeking to navigate the intersection of domestic policy and global carbon pricing. This will ensure that China’s carbon market becomes a cornerstone of its green economic transformation and a benchmark for international climate governance.

More information: Chunyan Dai et al, Aligning China’s local and national carbon markets under global carbon pricing, Energy and Climate Management. DOI: 10.26599/ECM.2025.9400017

Journal information: Energy and Climate Management Provided by Tsinghua University Press