According to the International Energy Agency [1], carbon emissions from fuel combustion rose from 26,177 Mt in 2004 to 32,190 Mt in 2013 (up 23%). To keep global temperature change below 2 C relative to pre-industrial levels, substantial cuts in these emissions are required, i.e. globally 40–۷۰ per cent lower in 2050 than in 2010 [2]. The People’s Republic of China is the largest carbon emitter, contributing to 28 per cent of the world’s total in 2013 [1]. New policy instruments are being introduced in China to strengthen its efforts on greenhouse gas (GHG) mitigation. The past ten years have seen its climate policy preference shifting from the conventional ‘command-and-control’ approach towards a market-based one [3–۱۰]. The recent arrival of emission trading schemes (ETS) in seven provinces and municipalities of China marked a watershed in the history of Chinese climate policy [11,12]. Emission trading involves a regulatory body setting an aggregate limit on the level of the regulated emissions, such as GHGs, and issuing permissions to pollute up to that limit. Entities covered by an ETS must hold enough emission allowances for the amount of the emissions they produce. These allowances represent a cost of production and can be exchanged among entities, and therefore have market value. Those entities who can reduce emissions at lower costs sell excess allowances, whereas those who find it more costly to reduce pollution buy allowances. The trading of allowances effectively creates a market institution, commonly known as ‘carbon market’.