Denny Ellerman, in The Energy Journal, Vol. 23, No. 2, pp. 1-26 (2002).

This paper discusses the problems of implementing a cap-and-trade system for controlling SO2 emissions in China. It describes the evolution of current air emissions policy for SO2 emissions and focuses on two critical aspects for establishing a tradable permits system in China: the transition from (non-tradeable) facility-specific permits to tradable (emissions) permits and the integration of tradable permits with pre-existing pollution levy system. A major theme throughout the paper is that the requirements for establishing an effective tradable permits system do not differ greatly from those for an equally effective tax or command-and-control regime. Although each instrument has distinctive features, the differences among them are mainly ones of form. All require that the same fundamental problems be solved: How to allocate the cost of burden of reducing emissions, what specific requirements to place on emitting sources, and how to ensure compliance.