On the one hand, the reluctance of companies that are covered by the ETS pilots to trade their allowances or to base investment decisions on the price of carbon emissions is explained by a natural learning curve, which is just at its starting point. On the other hand the ETS, as it is tested in the pilots currently, could hardly be called a free market mechanism. It is, rather, a 'flexible administrative instrument' for a relatively known constraint on energy usage and related emissions, and is perhaps seen as not immediately requiring changes in planning by companies. However, foreign companies based in China and covered by one of the ETS pilots would be well advised to have a China ETS strategy in place, as they have traditionally been primary targets for government scrutiny regarding environmental target compliance in China.
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