Abstract:This article comprehensively analyzes the impact of the carbon emission trading scheme(ETS)on the socio-economic development in China, in terms of medium and long-term economic growth, distributional effect and the regional equity, industry competiveness and economic structure adjustment, and incentives for low carbon technology innovation. The conditions for a well-functioned ETS in China are explored, such as market conditions of the whole economy and especially energy markets, potential conflict, and coordination between different coexisting policy instruments. Based on the systematic analysis and China's reality, recommendations on top-level design of the national ETS are proposed. First, ex-post adjusted flexible emission cap setting before 2030 is suggested to cope with the future uncertainties, stabilize carbon prices, and keep the long-term sustainable economic growth. Second, the carbon emission allowance allocation among different regions should be based on regional differences of GDP, per capita income, historical cumulative emissions, and so on, to promote the regional fairness and narrow gaps among regional development. Third, a suitable carbon emission allowance allocation approach among different sectors should be carefully designed, and targets for industrial competitiveness and economic structure adjustment should be coordinated. Forth, to promote low carbon technology innovation and investment to realize long term carbon abatement target, other policies are needed in addition to suitable ETS design. Fifth, indirect emissions can be included in the ETS in short term to improve the efficiency of the market, however, market-oriented reform in energy sectors is an essential condition to build a nationwide ETS. Sixth, climate policy, economic policy, pollution abatement policy, and renewable energy policy should be well co-designed to achieve multi-targets of social-economic development. Only in this way, ETS can play an important role to effectively decrease the abatement costs.