Can the enforcement regime of China’s emissions trading schemes effectively ensure compliance? A law and economics study

To control greenhouse gas (GHG) emissions, China has been exploring emissions trading schemes (ETSs) for over a decade. In general, whether or not an ETS can control emissions efficiently and cost-effectively depends on the compliance behaviour of its covered entities, which is influenced by its enforcement regime. This research aims to evaluate the effectiveness of the enforcement strategies of the seven pilot ETSs and the national ETS in China (China’s ETSs) in ensuring compliance from a law and economics perspective. It explores how effective enforcement strategies for an ETS can be derived from the law and economics literature. It then systematically describes the current compliance requirements and enforcement regimes of China’s ETSs. Next, it evaluates the extent to which China’s ETS enforcement designs and practices align with or deviate from effective ETS enforcement strategies in theory. This thesis concludes that the enforcement designs and practices of China’s pilot and national ETSs do not always appear to be effective in incentivising the regulated entities to comply with ETS regulations.