As the world’s largest greenhouse gas emitter, China has consistently been unwilling to accept an emissions cap in international negotiations. Nonetheless, in 2011 the country decided to institutionalize seven pilot emission-trading schemes (ETSs) at the city and province levels and to establish, from 2016, a national cap-and-trade system. In Carbon Trading in China, Alex Lo examines the development of Chinese carbon markets, arguing that carbon trading for China is not only a policy instrument, but also “a subject of discourse by which to reorganize narratives and reproduce power” (p. 10). Through a critical analysis linking climate politics to nationalism, the book provides original insight into Chinese climate policy beyond the official rhetoric.

According to Lo, the existing literature based on liberal-capitalist democracies attributes the rise of carbon trading to a coalition of economic, political, and environmental actors led by private financial institutions. In contrast, the China story challenges the notion that carbon trading is rooted in the norms of liberal market economies. Through a thorough examination of the policy development process, Lo shows that Chinese carbon markets appeared when global markets stumbled, and were primarily created by the state—its economic bureaucrats—with limited influence by environmental and nonstate financial actors. Considering the substantial challenges for China in building effective ETSs, including inefficient regulatory institutions, strong resistance to binding emissions targets, and the lack of corporate voluntary commitments on emissions reductions, Lo finds both the timing and the top-down approach to building ETSs in China unfavorable for realizing economic and political gains.

If material benefits were unforeseeable and the conditions were premature, why did the Chinese government adopt this neoliberal strategy? Lo answers this question by probing the discursive dimensions of politics. Rather than assuming the interests of actors as given and as responsible for driving policy change, his analytical approach focuses on how social realities are articulated and (re)constructed, and how multi-interpretable discourses help actors coordinate their conflicting ideas. Lo analyzes the claims of government officials and industry stakeholders about carbon trading in 179 Chinese newspaper articles, and finds inconsistencies in these discourses: On the one hand, by building domestic ETSs Chinese actors aim to regain the power of determining prices and rules in international carbon markets, which has been relegated to external institutions; on the other hand, these actors also recognize that China is not ready for carbon trading, due to its inefficient regulatory regime and absence of emissions caps.

Lo argues that such inconsistencies were reconciled by an extended interpretation of carbon trading in terms of development, which considers the establishment of domestic ETSs as necessary for securing China’s market power in global carbon markets, to protect the country’s development interests from Western hegemony. This discourse linking carbon trading to national development is appealing in China because of the deep-seated aspirations for redeeming sovereignty and rejuvenating the nation through economic development—aspirations rooted in China’s collective memory of national humiliation by foreign powers in the 19th and 20th centuries. Lo concludes that carbon markets, as a neoliberal policy, “appear less driven by efficiency considerations than macro-political imperatives” (p. 132).

The book sheds light on the fundamental forces driving Chinese climate policy; yet its argument would be more convincing if it had engaged with some alternative explanations. First, the study fails to distinguish between the motivations of the local and central governments to support carbon trading, although it does differentiate two market-building phases—proliferation of local exchanges until 2010, and regulation by the central government since 2011. It is probable that before global carbon prices started to crash in 2010, local governments established ETSs to seek benefits from foreign buyers, whereas the central government intervened afterward due to concern about an erosion of sovereign power. Moreover, China’s choice of ETSs over carbon taxes may in fact be a preemptive action to reform its institutions for the transition to a low-carbon economy. This hypothesis implies a rational basis for China establishing carbon trading, and therefore is worth testing through interviews with governmental officials, so as not to overestimate the power of discourse in China’s policy-making.

Finally, an inquiry about the role of transnational actors is generally missing in the text. By underscoring China’s perceived loss of power, Lo overlooks various benefits brought to China—particularly in technology development—by Clean Development Mechanism projects. Following this logic, one could expect a coalition consisting of the Chinese government and foreign technology investors/developers to support Chinese carbon markets. A sociological explanation emphasizing transnational norm diffusion through social interaction should be considered, as the establishment of a cap-and-trade system may embody China’s response to international pressures. While Lo briefly mentions such pressures in chapter 1, the influences of other countries or international organizations disappear in his subsequent analyses. Exploring these forces is worthwhile, as Beijing endeavors to build its normative power in global governance, which is also helpful to legitimizing the regime’s domestic rule.

In sum, Carbon Trading in China gives an excellent overview of the development of Chinese carbon markets. Lo’s critical account illustrates the complexity of climate politics in China, and thereby advances our understanding of the political economy of carbon trading. Through its original perspective, putting climate policy into broader historical-political contexts, the book opens a new research agenda focused on the agency of China, as well as other emerging economies, in global governance.