Core Mechanism of Carbon Finance: The Emissions Trading Scheme (ETS)

Against the strategic backdrop of China’s "dual carbon" goals, carbon finance functions as a pivotal instrument for advancing low-carbon transformation. The development of its market-based mechanisms bears critical significance for China’s attainment of climate governance targets. This paper systematically reviews the current state of China's carbon finance market, with a focus on analyzing its challenges and opportunities, and proposes pathways to deepen its development. Research indicates that China's carbon finance has initially established an initial framework characterized by the coexistence of policy guidance and market exploration. The national Emissions Trading Scheme (ETS) has become the world's largest carbon market, yet core bottlenecks persist, including inadequate policy and regulatory frameworks, insufficient market liquidity, lagging innovation in carbon financial products, and a shortage of specialised talent. Concurrently, the capital demands generated by the dual carbon goals, the impetus for green transition, technological empowerment, and international cooperation endow the market with substantial development potential. To address these challenges, this paper proposes breakthrough pathways encompassing optimising market mechanisms (e.g., expanding sector coverage and introducing derivatives trading), promoting product and service innovation, strengthening risk management, and deepening international cooperation. The study concludes that multidimensional reforms can significantly enhance the efficiency and resilience of the carbon finance market, thus establishing it as a core financial instrument underpinning China's low-carbon economic transition.