On a positive note, at least some of the schemes have the potential to operate on a sufficiently large scale to overcome many of the problems that have plagued earlier ETS experiments in China. In particular the scheme in Guangdong, which has a population exceeding 100 million and an economy similar in size to Hirkey’s, could create a trading market comparable in size to some national schemes. An institutional framework that is credible and provides firms with sufficient certainty is needed at the outset and several lessons can be learnt from domestic and international experience in this area. The difficulties faced by pollution trading schemes and levies within China underscore the importance of a clear and effective nationwide legal framework. The difficulty of providing clear and stable signals to firms and investors in a trading scheme is illustrated by carbon price volatility in the EU ETS. Determining an appropriate cap and avoiding an excess supply of permits is critical and hinges on an accurate assessment of current emissions.