China’s carbon market unification process accelerates, local pilots and national market collaborate towards globalization

The research analyzes 346 policy documents and conducts 22 expert interviews, providing key insights and policy recommendations for the ongoing integration of carbon markets, emphasizing the importance of effectively reducing emission reduction costs and stimulating green innovation through market mechanisms.

With the introduction of global carbon pricing policies such as the EU Carbon Border Adjustment Mechanism (CBAM), China's carbon market development faces new opportunities and challenges. The latest research, conducted collaboratively by Professor Dai and Professor Pollitt, offers a strategic blueprint for coordinating local pilot carbon markets with the national unified carbon market.

The study points out that the expansion of China's national carbon market currently faces bottlenecks in Measurement, Reporting, and Verification (MRV), while the EU's CBAM mechanism has set a deadline of 2034 for China to fully mature its national carbon market. On the other hand, local pilot carbon markets retain crucial "triple innovation functions" under the "dual-track coexistence model"—covering small and medium enterprises, fostering carbon financial innovations, and regulatory experimentation.

The lead author of the study states, “Our research challenges three prevalent assumptions—‘domestic priority’ (CBAM drives domestic reform), ‘system priority’ (local pilots promote national legislation), and ‘technological determinism’ (political recognition outweighs pure technological upgrades). What is truly effective is the coordinated development of multi-level markets, rather than simply replacing local markets with a national one.”

Why Is This Research Important for Readers?

The study emphasizes the importance of coordinating China's multi-level carbon markets in the context of global carbon pricing. “The carbon market is a key policy tool for controlling greenhouse gas emissions, capable of driving deep transformations in traditional industries while fostering the development of new productive forces,” the authors explain. “As international carbon pricing mechanisms like CBAM are implemented, China needs to accelerate the market integration process to maintain international competitiveness and achieve its dual carbon goals.”

Key Takeaways: Dual-Track Coexistence and Triple Innovation

The core finding of the research is the value of the continued existence of local pilot markets. “Local pilot carbon markets are not just a complement to the national market but also serve as experimental fields for innovation,” the authors emphasize. “They possess unique advantages in covering small enterprises, carbon financial products, and regulatory innovations, which can be promoted to the national market in the future.”

Next Steps and Ultimate Goals

Regarding next steps, the research recommends prioritizing the improvement of MRV systems, strengthening policy coordination, and adhering to international standards in the design of the national market system while reserving interfaces for external engagement.

“Our ultimate goal is to establish a carbon pricing mechanism that demonstrates significant emission reduction effects, a sound rule system, and reasonable price levels, making China's carbon market a more internationally influential carbon pricing center,” the authors state. “This will not only facilitate domestic green and low-carbon transformation but also enhance China's voice in global climate governance.”

The publication of this research coincides with a new phase in China's carbon market development. The General Office of the CPC Central Committee and the General Office of the State Council recently issued the "Opinions on Promoting Green and Low-Carbon Transformation and Strengthening National Carbon Market Construction," outlining key objectives for carbon market development by 2027 and 2030. As of the end of July 2025, the cumulative transaction volume of the national carbon emission trading market reached 681 million tons, with a transaction value of 46.784 billion yuan. In 2024, a total of 2,096 key emission units will be included in the national carbon emission trading market, with a compliance rate close to 100%.

The research team hopes their findings will provide reference for policymakers, helping China better navigate the challenges and opportunities of the global carbon pricing era.

This work was supported by Key Projects 24AGL003 of the National Social Science Foundation of China.