Empirical and economic insights into the enforcement of China's national emissions trading scheme: Evidence from the first compliance period

This article applies deterrence theory to assess the enforcement effectiveness of China's national Emissions Trading Scheme (ETS) during its first compliance period. It examines three dimensions of enforcement - detection capacity, conditional sanctioning probability, and sanction severity - while considering the balance between deterrence-based and cooperative tools. Our empirical analysis draws on 141 publicly disclosed administrative penalty decisions. Although official reports present a 99.50% quantity-based compliance rate, entity-level evidence reveals more substantial non-compliance. The findings show that documented violations were almost always sanctioned once detected, but penalties were low, weakly differentiated, and largely unrelated to the scale of allowance shortfalls. A cost–benefit assessment further indicates that, even under optimistic detection assumptions, the expected benefits of non-compliance exceeded expected sanction costs in all cases. These results indicate that high sanctioning probability alone is insufficient for credible deterrence when sanctions are too low and not proportionate to violations. The article further situates these findings in light of recent legal reforms, including the 2024 ETS Regulation and China's pilot ETSs, showing that while these frameworks introduce more proportional and potentially stronger sanctions, challenges of calibration and credible enforcement remain.