The indecisive role of the market in China’s SO2 and COD emissions trading |
| |
| Authors: | Bing Zhang Hanxun Fei Pan He Zhanfeng Dong Oran R Young |
| |
| Institution: | 1. State Key Laboratory of Pollution Control and Resource Reuse, School of Environment, Nanjing University, China;2. School of Government, Nanjing University, China;3. Chinese Academy for Environmental Planning, Ministry of Environmental Protection, Beijing, China;4. Bren School of Environmental Science and Management, University of California at Santa Barbara, USA |
| |
| Abstract: | Governmental intervention is essential to combat environmental pollution, a phenomenon classically explained as market failure, while market-based environmental policy instruments have provided cost-effective alternatives. By examining five pilot air pollution (sulfur dioxide) and water pollution (chemical oxygen demand) trading schemes in China through a market-based theoretical framework and extensive empirical analysis, this research analyzes where a state-market boundary is defined, whether the market is performing effectively, and, critically, what leads to underperformance. Constrained by policy design, policy conflicts, and excessive state intervention, the market has not played an effective and ‘decisive’ role, resulting in low market thickness for participants and transactions, market congestion on prices, and inadequate market safety for genuine emissions trading. Better emissions trading for conventional pollutants and CO2 requires better market-oriented rules, improved policy coordination, and stronger implementation while minimizing state intervention. |
| |
| Keywords: | state–market relations pollution emissions trading market design |
|
|
