The unique characteristics of China's economic development and electricity marketization have resulted in the implementation of a bottom-up intensity-based emissions cap in China’s national emissions trading system (ETS) in its early stages. However, the efficacy of the bottom-up cap-setting approach remains controversial, particularly with regard to achieving emission reduction goals and cost-effectiveness. In response to China's "dual carbon" targets and updated Nationally Determined Contributions (NDC), China’s national ETS shall gradually shift towards a real cap-and-trade system, with a transition period when a hybrid system, which has an absolute control cap beside the intensity cap, is implemented.

The Transition from an Intensity to an Absolute Emissions Cap in China’s National Emissions Trading System examines the cap-setting approaches used in ETSs in China, the underlying reasons for choosing intensity caps in China, and major issues related to the transition from an intensity cap to an absolute cap in China’s national ETS.

For more analysis on this topic, please see the report General Equilibrium Analysis of the Cost-Effectiveness and Distributional Impacts of China's Nationwide CO2 Emissions Trading System.