Policy design of the Hubei ETS pilot in China

Of seven pilot emissions trading schemes (ETS) being run in China, the ETS in Hubei province is the only provincial pilot in the central and western regions of the country with a high GDP growth rate and heavy industrial structure. As such, it is quite representative of China as a whole and its ETS will therefore be reasonably characteristic of a future nationwide market. This paper describes the policy design of the Hubei ETS, including aspects of coverage, cap, allowance allocation, transactions, compliance and penalties. Then, after making a comparison with the other Chinese pilots and emissions trading schemes in the European Union (EU) and California, the paper offers a summary of several distinct features of the Hubei ETS. First, the small numbers of entities that are covered by the scheme produce a considerable proportion of the emissions. This makes Hubei the world׳s third largest carbon market. Second, the Hubei ETS applies several mechanisms to deal with the province's rapid growth rate. Third, the scheme׳s policy design emphasizes liquidity. In addition to these unique features, the Hubei ETS also shares some common features with all the pilots in China.