Localization vs globalization of carbon emissions trading system (ETS) rules: how will China’s national ETS rules evolve?

China’s national carbon emission trading system (C-ETS) is central to its climate action. Previous studies have largely focused on the unique ETS design and/or regulatory details to determine whether the ETS functions successfully. However, less attention has been paid to crucial questions of how China adapts ETS rules to its unique political, legal, economic, and social contexts; and, given China’s climate ambitions, how those rules will develop in future global climate governance. Adding to discussions on how to design the ETS legal infrastructure, this study takes the world’s largest ETS (C-ETS) as an example to discuss the critical question of what rules should be differentiated and what rules should be harmonized (e.g. in alignment with the arguable prototype EU ETS and/or those of strategic partners). First, by examining China’s general ETS institutional framework, its legal evolution, and related legal disputes, this study highlights a ‘central government-promoted model’ underlying China’s ‘localization’ of ETS rules. A Functional Comparative Legal Analysis Framework is proposed to identify China’s key, distinctive, and long-lasting ETS legal features and to examine their collective potential to provide effective, efficient, and just abatement incentives. Further situating the C-ETS in global climate governance, this study provides insights into the potential future development of China’s ETS rules, with policy priorities that vary across stages. Finally, we draw lessons for other jurisdictions and discuss how our analysis might assist in the transnational understanding and potential coordination of different ETS rules.A global proliferation of ETSs calls for a transnational understanding of various ETS rules.China’s central government-promoted model and ETS legal features, along with their collective effects on the ETS’s functioning, help to clarify what rules should be localized or globally harmonized, explaining China’s unique ETS rules and shedding light on its ongoing legal evolution.China’s experience with the ETS shows that localizing ETS rules is essential, but there is a price to pay.There is no one-size-fits-all ETS model available. Jurisdictions must balance localization with global harmonization of ETS rules, considering institutional contexts, dynamic policy priorities, and climate ambitions.