Guangdong’s Carbon Trading System: A Review of Liquidity and Influencing Factors

Abstract

China’s seven carbon-trading pilots were approved for establishment in 2011 and subsequently commenced operations starting June 2014. As the largest carbon market among the seven Chinese carbon-trading pilots, Guangdong is evaluated as the second-largest carbon market in the world, only being next to the European Union (EU). These pilots instigated enormous influence on the policy formulated towards the establishment of China’s national unified carbon market in 2017 with implications for solutions to environmental and climate problems on a national and even global level. This paper mainly adopts a comparative analysis approach, first to compare the liquidity of the Guangdong carbon market nowadays with a prior period and then with the Hubei carbon market. It further compares the influencing factors of carbon market liquidity based on the former results. The analysis identifies the factors influencing the low liquidity of the Guangdong carbon market, including the separation between the primary and secondary markets, insufficient openness in the secondary market, lack of adequate investors, inadequate consideration of the distribution and collection of emission allowances, an irrational carbon finance product structure, as well as a backward trading mechanism. Finally, this paper offers suggestions and proposals based on the problems identified in the overall assessment.