A well-functioning carbon trading system could have profound impact on the future Chinese energy system together with other policy measures. The carbon trading system together with implementation of a nationwide electricity market can give strong incentives for further development and integration of renewable energy sources like hydropower, wind power and solar power.

Crucial for the long-term impact of the system is the detailed allocation mechanisms and the amount of emissions quotas available for the market. It is important that the system, also in the initial phase, creates the right economic incentives for an energy transition towards green and low-carbon technologies in order to allow for economic growth within the framework of an ecological civilization.

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