Governing climate change in Hong Kong: Prospects for market mechanisms in the context of emissions trading in China

Hong Kong continues to struggle over which environmental governance approach is in its best interest while fulfilling its environmental obligations. With regard to climate change, Hong Kong's approach is characterised by a passive form of governance that is highly dependent on China's national policy directions. This is reflected, for example, in Hong Kong having not set its own mitigation targets. Market mechanisms have received little attention in developing a city‐wide climate change strategy. A transformative impulse, China's national emissions trading scheme, may provide momentum to a market‐based approach. However, the necessary conditions for such a market mechanism to be successfully implemented in China remain relatively undeveloped. This raises question about early participation by Hong Kong. Direct benefits are likely to be limited, due to Hong Kong's economic structure and weak demand for emissions reduction. Besides, there are regulatory barriers to enforcing emissions targets and/or recognising emissions allowances and credits from China. We therefore argue that nationwide emissions trading may, at this time, present more challenges than opportunities for Hong Kong to leverage its efforts on climate change mitigation. An alternative is to promote voluntary emissions trading that will require active involvement and leadership by businesses.