Introducing auctioning in China’s national carbon market: lessons from international and domestic practices
Creators: name: Yu, Runxin
name: Zhang, Da
name: Zhang, Xiliang
Publisher: name: Taylor & Francis
Year: 2024
Subjects: subject: Neuroscience
subject: Environmental Sciences not elsewhere classified
subject: Sociology
subject: FOS: Sociology
subject: Biological Sciences not elsewhere classified
subject: Science Policy
subject: Mental Health

description: In the pursuit of its climate goals, China’s national carbon market is actively exploring the introduction of allowance auctioning to strengthen domestic mitigation efforts. However, this process involves complex design elements and faces significant challenges, with a lack of comprehensive analysis and guidance. This study delves into theoretical and practical aspects of key design elements – auction format, eligibility, frequency, size, reserve price, use of revenue, platform, and market access – focusing on the rationale, policy concerns, and market performance. Drawing insights from international and domestic practices, it summarizes a range of auctioning approaches, aiming to offer insights for other emissions trading systems that are considering allowance auctioning. It emphasizes designing auctions tailored to different circumstances and illustrates how these can be adapted to China, where auctions are considered tools to enhance carbon pricing, promote market efficiency, and bolster resilience against carbon border adjustment mechanisms. It also investigates practical issues specific to China – such as policy acceptance, administrative costs, and necessary supporting mechanisms – thereby highlighting potential challenges. Key policy insights<i>ω</i> The designs of auction elements, such as auction share and use of revenue in different jurisdictions, should align with their unique context to fully balance equity, efficiency, and administrative costs.<i>ω</i> Introducing auctions in China is an effective way to enhance carbon pricing, address market operating challenges, and enhance resilience against international climate policies.<i>ω</i> The challenges faced by China include industrial equity and affordability concerns, adverse social and economic consequences, limited cost pass-through capacity, complexity of revenue administration, and lack of technical and administrative supporting systems.<i>ω</i> It is recommended that China adopt a uniform price auction with an initial auction share of 3%–10% and predictable reserve prices, to be held with moderate frequency, directing the revenue to efforts related to climate change mitigation and adaptation and vulnerable groups. <i>ω</i> The designs of auction elements, such as auction share and use of revenue in different jurisdictions, should align with their unique context to fully balance equity, efficiency, and administrative costs. <i>ω</i> Introducing auctions in China is an effective way to enhance carbon pricing, address market operating challenges, and enhance resilience against international climate policies. <i>ω</i> The challenges faced by China include industrial equity and affordability concerns, adverse social and economic consequences, limited cost pass-through capacity, complexity of revenue administration, and lack of technical and administrative supporting systems. <i>ω</i> It is recommended that China adopt a uniform price auction with an initial auction share of 3%–10% and predictable reserve prices, to be held with moderate frequency, directing the revenue to efforts related to climate change mitigation and adaptation and vulnerable groups.