The construction and development of a carbon market is vital to the reduction of greenhouse gas emissions and the transition to a green low-carbon economy in China, especially given the country’s long-term target of reaching carbon neutrality by 2060. Moreover, China’s carbon market faces significant challenges ranging from data collection issues and lack of transparency to inconsistency of policies and fragmented regulations. Through a systematic review of 160 peer-reviewed papers and policy documents (2010-2024), this study identifies three key risk categories and reviews China’s carbon market in the context of the risks to its development and implementation. The review starts with discussing the critical components of risks in China’s carbon market such as price volatility of carbon, the unavailability of comprehensive carbon emissions data and standardized reporting scheme, and the complexity of a national level carbon market integration. It examines the history of the market, how the spread of new information has transformed its current form, and illustrates both the global and local dynamics, particularly regarding the threats of information asymmetry and technology gaps. As well as identifying these challenges, the paper proposes some potential approaches to mitigate the risks to the carbon marketing conclusion, the review identifies numerous recommendations that could enhance the carbon market to ensure it successfully functions and assists in China’s long-term climate change mitigation objectives. Through these solutions in response to the challenges, China can realize the full potential of its carbon market and lead the way toward global climate solutions that other countries would be able to emulate toward low-carbon economic systems.
Cite this paper
Asma, T. , Zhou, X. and Pei, X. (2025). A Review of Risk and Mitigation Strategies in the Development of China’s Carbon Market. Open Access Library Journal, 12, e13648. doi: http://dx.doi.org/10.4236/oalib.1113648.
Wang, T., Zhang, X., Ma, Y. and Wang, Y. (2023) Risk Contagion and Decision-Making Evolution of Carbon Market Enterprises: Comparisons with China, the United States, and the European Union. Environmental Impact Assessment Review, 99, Article 107036. https://doi.org/10.1016/j.eiar.2023.107036
Zhang, F. and Zhang, Z. (2020) The Tail Dependence of the Carbon Markets: The Implication of Portfolio Management. PLOS ONE, 15, e0238033. https://doi.org/10.1371/journal.pone.0238033
He, L.Y., He, H.B., Xia, Y.F., Chen, L. and Zhong, Z.Q. (2023) Has China’s Carbon Market Stress Released? Measurement and Comparison of National and Pilot Carbon Markets’ Stress. Envi-ronmental Science and Pollution Research, 30, 72741-72755. https://doi.org/10.1007/s11356-023-27539-4
Yang, X.Z., Zhang, C., Yang, Y., Wang, W. and Wagan, Z.A. (2022) A New Risk Measurement Method for China's Carbon Market. International Journal of Finance & Economics, 27, 1280-1290. https://doi.org/10.1002/ijfe.2214
Wang, X.P. and Yan, L. (2022) Measuring the Integrated Risk of China’s Carbon Financial Market Based on the Copula Model. Environmen-tal Science and Pollution Research, 29, 54108-54121. https://doi.org/10.1007/s11356-022-19679-w
Jiang, J., Xie, D., Ye, B., Shen, B. and Chen, Z. (2016) Research on China’s Cap-And-Trade Carbon Emission Trading Scheme: Overview and Outlook. Applied Energy, 178, 902-917. https://doi.org/10.1016/j.apenergy.2016.06.100
Zhan, J., Wang, C., Wang, H., Zhang, F. and Li, Z. (2024) Pathways to Achieve Carbon Emission Peak and Carbon Neutrality by 2060: A Case Study in the Beijing-Tianjin-Hebei Region, China. Renewable and Sustainable Energy Reviews, 189, Article 113955. https://doi.org/10.1016/j.rser.2023.113955
Schneider, D., Woerle, M., Kagermeier, J., Zaeh, M.F. and Reinhart, G. (2024) Sustainability Risk Assessment in Manufacturing: A Life Cycle Assessment-Based Failure Mode and Effects Analysis Approach. Sustainable Production and Consumption, 47, 617-631. https://doi.org/10.1016/j.spc.2024.04.030
Re-za, R. and Tularam, G.A. (2021) Volatility Spillovers in Water Exchange-Traded Funds. In: Contemporary Research and Practices for Promoting Financial Literacy and Sustainability, IGI Global. https://doi.org/10.4018/979-8-3693-0863-9.ch004
Yang, X., Zhang, J., Bi, L. and Jiang, Y. (2023) Does China’s Carbon Trading Pilot Policy Reduce Carbon Emissions? Empirical Analysis from 285 Cities. International Journal of Environmental Research and Public Health, 20, Article 4421. https://doi.org/10.3390/ijerph20054421
Cui, J., Wang, C., Zhang, J. and Zheng, Y. (2021) The Effectiveness of China’s Regional Carbon Mar-ket Pilots in Reducing Firm Emissions. Proceedings of the National Academy of Sciences, 118, e2109912118. https://doi.org/10.1073/pnas.2109912118
Wang, D., Sun, Y. and Wang, Y. (2024) Comparing the EU and Chinese Carbon Trading Market Operations and Their Spillover Effects. Journal of Environmental Management, 351, Article 119795. https://doi.org/10.1016/j.jenvman.2023.119795
Wang, K. and Chen, L.Y.U. (2024) Achievements and Prospect of China’s National Carbon Market Construction. Journal of Beijing Institute of Technology (Social Sciences Edition), 26, 16-27.
Fan, J.H. and Todorova, N. (2017) Dynamics of China’s Carbon Prices in the Pilot Trading Phase. Applied Energy, 208, 1452-1467. https://doi.org/10.1016/j.apenergy.2017.09.007
Tang, C., Liu, X. and Yang, G. (2023) How Does Carbon Market Affect Corporate Risk-Taking—Evidence from China. Emerging Markets Finance and Trade, 59, 1115-1128. https://doi.org/10.1080/1540496x.2022.2138704
Xu, Y. (2021) Risk Spillover from Energy Market Uncertainties to the Chinese Carbon Market. Pacific-Basin Finance Journal, 67, Article 101561. https://doi.org/10.1016/j.pacfin.2021.101561
Weng, Q.Q. and Xu, H. (2018) A Review of China’s Carbon Trading Market. Renewable and Sustainable Energy Reviews, 91, 613-619. https://doi.org/10.1016/j.rser.2018.04.026
Sun, D., Sun, J.Q., Zhang, X.P., et al. (2016) Carbon Markets in China: Development and Challenges. Emerging Markets Finance and Trade, 52, 1361-1371. https://doi.org/10.1080/1540496x.2016.1152811
Zhou, Z.F., Zhang, T., Wen, K., et al. (2018) Carbon Risk, Cost of Debt Financing and the Moderation Effect of Media Attention: Evidence from Chinese Compa-nies Operating in High‐Carbon Industries. Business Strategy and the Environment, 27, 1131-1144. https://doi.org/10.1002/bse.2056
Zhou, K.L. and Li, Y.W. (2019) Carbon Finance and Carbon Market in China: Pro-gress and Challenges. Journal of Cleaner Production, 214, 536-549. https://doi.org/10.1016/j.jclepro.2018.12.298
Qiu, H., Hu, G.H., Yang, Y.H., et al. (2020) Modeling the Risk of Ex-treme Value Dependence in Chinese Regional Carbon Emission Markets. Sustainability, 12, Article 7911. https://doi.org/10.3390/su12197911
Wang, W. and Zhang, Y.J. (2022) Does China’s Carbon Emissions Trading Scheme Affect the Market Power of High-Carbon Enterprises? Energy Economics, 108, Article 105906. https://doi.org/10.1016/j.eneco.2022.105906
Zhang, S., Ji, H., Tian, M. and Wang, B. (2022) High-Dimensional Non-linear Dependence and Risk Spillovers Analysis between China’s Carbon Market and Its Major Influence Factors. Annals of Operations Research, 345, 831-860. https://doi.org/10.1007/s10479-022-04770-9
Yu, M.W. and Pan, S.M. (2009) Status and Trends of China Carbon Trading Market under Financial Crisis. Economic Theory and Business Management, 11, Article 57.
Addy, W.A., Ajayi-Nifise, A.O., Bello, B.G., et al. (2024) Algorithmic Trading and AI: A Review of Strategies and Market Impact. World Journal of Advanced Engineering Technology and Scienc-es, 11, 258-267. https://doi.org/10.30574/wjaets.2024.11.1.0054
Dong, W.C., Sun, H.X., Mei, C.X., et al. (2023) Forecast-Driven Stochastic Optimization Scheduling of an Energy Management System for an Isolated Hydrogen Microgrid. Energy Conversion and Management, 277, Article 116640. https://doi.org/10.1016/j.enconman.2022.116640
Afonso, F., Sohst, M., Diogo, C.M.A., Rodrigues, S.S., Ferreira, A., Ribeiro, I., et al. (2023) Strategies towards a More Sustainable Aviation: A Systematic Review. Progress in Aerospace Sci-ences, 137, Article 100878. https://doi.org/10.1016/j.paerosci.2022.100878
Berthold, B. (2023) The Macroeco-nomic Effects of Uncertainty and Risk Aversion Shocks. European Economic Review, 154, Article 104442. https://doi.org/10.1016/j.euroecorev.2023.104442
Fan, H.L., Tang, Q.L. and Pan, L.P. (2021) An International Study of Carbon Information Asymmetry and Independent Carbon Assurance. The British Accounting Review, 53, Article 100971. https://doi.org/10.1016/j.bar.2020.100971
Goodell, J.W., Gurdgiev, C., Karim, S. and Palma, A. (2024) Carbon Emissions and Liquidity Management. International Review of Financial Analysis, 95, Article 103367. https://doi.org/10.1016/j.irfa.2024.103367
Dumrose, M. and Höck, A. (2023) Corporate Carbon-Risk and Cred-it-Risk: The Impact of Carbon-Risk Exposure and Management on Credit Spreads in Different Regulatory Environments. Finance Research Letters, 51, Article 103414. https://doi.org/10.1016/j.frl.2022.103414
