Fixing the Emissions Trading Scheme : Carbon Price Stability in the EU and China

This paper critically questions the legal and economic foundation of price regulation under the European Union (EU) and Chinese Emissions Trading Schemes (ETS). In 2018, the EU adopted a structural reform of the ETS with the objective of increasing and stabilising carbon prices. This reform raises fundamental questions concerning the free market nature of the ETS and its function as driver of low-carbon investments. On the one hand, regulatory adjustments are necessary to address the large surplus of allowances that can result from economic downturn and non-ETS decarbonisation measures (e.g. renewable energy subsidies). On the other hand, the risk of regulatory intervention with the market undermines investor certainty. In China, limited regulatory independence and more stringent government control over the market exacerbates the threat that price control measures represent to the integrity of the ETS and its role as driver of low-carbon investments