China has developed its own domestic carbon markets by setting up emission trading schemes. This study addresses concerns about the functioning of these schemes and the financial performance of the Chinese carbon market. It aims to assess an actual outcome of this policy intervention, i.e. trading records, which were used in our analysis to examine a key financial property of the allowance-based market in Shenzhen. In a mature market, assets that incur higher risks are likely to yield higher returns, i.e. a positive relationship. To examine this property, we solicited historical data on the price and trading volume of emission allowances. We statistically estimated the degree of volatility in the Shenzhen market andits relationship with expected return premium. We found that the rate of return was negatively associated with expected risk. This stands at odds with the usual expectation in the financial market and the prediction of asset pricing theory. Also, kurtosis in trading volume was excessively high and its fluctuations were highly concentrated. We discuss these findings in terms of market liquidity and information uncertainties, and offer some policy recommendations. More regulatory attention and economic fixes are needed to improve market efficiency and eliminate sources of market distortions.

A domestic alternative to the Clean Development Mechanism (CDM) is operating in China, creating new opportunities for offsetting greenhouse gas emissions. More than two thousands 'Chinese Certified Emission Reduction' (CCER) projects have been validated. The state-led programme is important as it represents a transition of China's carbon market from specializing in the export of emission reductions toward serving domestic consumption. This article provides a snapshot of the 'post-CDM' context in China. It explores whether the CCER programme reveals a general pattern of development that is different from that of the CDM. Official project records are used to show the geographical and sectoral distribution of CCER projects. These records suggest that the western and northern areas of China will continue to play a key role in generating emission reductions, if not a stronger one than in the CDM. The shift toward inland may create development benefits. Sectoral distribution is a potential source of variations from the CDM. While the majority of emission reductions will be derived from renewable energy sources, a significant minority will come from waste-based ones. The market has expressed an interest in the re-use of biogas in rural areas. These initial observations could inform policy discussions and help forecast the potential share of key provinces and sectors in the new carbon market.

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