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China’s emission rights trading moves toward institutionalization What is emission rights trading? Emission rights trading refers to the practice, under the premise of controlling the total amount of pollutant emissions, of selling the emission allowances saved by one enterprise as a commodity to enterprises that lack such allowances. For example, if Company A’s COD (Chemical Oxygen Demand, a measure of water pollution) emission quota for 2008 was 1,000 tons, but it actually only needed to emit 800 tons, then it could sell the excess 200 tons through a trading platform to Company B, which needed to purchase emission rights, in order to achieve better economic benefits. Recently, Jiaxing City in Zhejiang Province established the country’s first emission rights trading center, a move that signals the gradual institutionalization of emission rights trading in China. Experts believe that the emission rights trading system will effectively facilitate a shift in China’s pollution control approaches from the previous \"fee-based pollution control\" to the \"total amount control\" strategy embodied by this system. From \"pay to emit\" to \"have the right to emit\": The emission rights trading system reflects a pollution control strategy based on \"total amount control\". That is, no matter how the emission rights are traded among emitters, the total amount of emissions in the region will not increase, and there is no risk of deterioration in the environmental quality of the region. Zhao Hualin, deputy director of the Total Emission Control Office under China’s Ministry of Environmental Protection, said that compared with the previous control method of charging fees for pollution emissions, the emission rights trading system to be established in China will encourage enterprises to move away from the old approach of emitting pollutants simply by paying fees; instead, they must first obtain \"allocation-based emission quotas\" before they can emit pollutants. China’s \"Regulations on the Collection and Use of Pollution Discharge Fees\" issued in 2003 stipulate that entities or individuals that discharge pollutants directly into the environment must pay such fees as required. This represents a pollution control approach based on the principle of \"paying to pollute\", one that relies more on **behavioral measures to promote environmental protection. During the implementation of this regulation, a series of problems arose: on the one hand, enterprises lacked the internal pressure and motivation to protect the environment, and some polluting enterprises preferred to pay pollution fees in order to pursue profits at all costs. Some major polluters even allocate specific funds in their budgets for pollution fees and fines related to excessive emissions ； On the other hand, since 90% of the pollution fees can be used as local government revenue, there is still **tolerance for pollution in some areas. As a result, despite **increasing financial investment year by year, environmental quality has not improved fundamentally because there are no limits on the total amount of pollutants discharged. Jiaxing Experience: Institutionalization of Initial Trading Before a formal emission rights trading platform was established in Jiaxing City, the **Environmental Protection Administration started comprehensive pilot projects for emission rights trading in certain provinces beginning in 2002. Over the past few years, there have been examples of emission rights trading in various regions including Nantong in Jiangsu and Jiaxing in Zhejiang, but all such transactions took place on a point-to-point basis between enterprises, facilitated by the environmental protection authorities. “The establishment of the Jiaxing Emission Rights Reserve Trading Center has transformed the previously fragmented and individualized trading of emission rights into a more institutionalized and scaled-up process. ”Zhao Hualin said. He said that the Environmental Protection Administration, in collaboration with the Ministry of Finance, will allocate 18 million yuan each year for three consecutive years to establish a large-scale emission rights trading platform in the Taihu Lake basin. Based on international practices, the model of the emission rights trading system is as follows: **an authority determines the maximum amount of pollutants that can be emitted in a given area without exceeding the environmental capacity, and this amount is divided into several designated emission quotas; each such quota represents one emission right. **In the primary market for emission rights, these rights are sold to polluters on a paid basis through certain methods such as bidding or auctions. After purchasing emission rights, emitters can buy or sell them on the secondary market depending on their usage needs. “Once the total amount of pollutants allowed to be emitted in a region is determined, emission rights become a scarce resource. These limited emission rights inevitably lead to high prices for their trading. Driven by profit motives, companies will naturally value these limited emission rights and reduce their pollutant emissions. ”Zhao Hualin pointed out. “\"Total quantity control\" should be the primary measure. As Pan Yue, deputy head of China’s Environmental Protection Agency, recently said, implementing a pollution rights trading system in China may still face a series of difficulties. For example, as a special form of benefit distribution, there are issues such as how to ensure fairness in the **initial allocation, how to prevent those who take more from asking for more, and how to rely on accurate data for proper regulation in the absence of a nationwide, vertically integrated monitoring network. Therefore, the emission rights trading policy still needs further research and pilot testing based on national conditions. It is worth noting that the allocation of emission rights in our country is still in its initial stages. Since some regions unilaterally pursue rapid development and an extensive economic development model has yet to be fundamentally changed, this has led to conflicts between economic development and overall environmental protection controls, making it difficult to determine the total amount of emissions allowed for trading. Therefore, Chen Lujun, a professor in the Department of Environmental Science and Engineering at Tsinghua University, believes that the most urgent issue at present is to **scientifically determine the total amount of pollutants discharged in a given area, and to establish unified regulations for the practical implementation of pollution control strategies based on \"total amount control.\" Existing environmental laws should contain more explicit provisions regarding the objectives of total pollutant discharge control, the determination of such totals, as well as procedures for monitoring and testing, and the distribution of these pollutants.