The 7th monthly meeting of Joint Research 2: research on improvement of rules on carbon market oversight and management under the Project was held online on 29th February 2024. The designated Chinese and European experts from National Center for Climate Change Strategy and International Cooperation (NCSC), Shanghai Environment and Energy Exchange, Ecologic Institute and Tsinghua University joined the meeting.

Joint Research 2 was conducted to review and build upon the current status and requirements of carbon emission trading rules of China’s national ETS, focusing on the potential risks and improvement of trading methods and trading supervision, with the pragmatic recommendations on trading management rules amendment through comprehensive analysis.

After months of research and discussion, the experts involved in the Joint Research 2 have come up with some preliminary conclusions and recommendations, for example:

Limited liquidity has been a recurring challenge in the majority of carbon markets. For the operation of the carbon market, this challenges in particular the function of allocating the reduction effort across all emitters in a cost-minimising way. Market participants are often less engaged on the carbon market than what model or textbook assumptions would suggest, resulting in limited trading activity. This may result from a lack of awareness, experience with and understanding of the instrument, but may be a conscious and well-informed choice as firms weigh the costs and benefits of engaging more intensively on the carbon market. Companies cannot be forced to trade; the regulator can only encourage firms to be more engaged, and to lower or remove barriers.