Research on the Construction of China's Emission Trading System from the Perspective of Transaction Cost Theory

China's pollutant discharge management is based on the current government-led administrative approval system. Although some regions have carried out the pilot work of emission trading, they have not formed a legal basis and a system of standardization and haven't been promoted. The purpose of this paper is to analyze the causes and design and construct the framework of China's emissions trading system. Firstly, the resource allocation efficiency of emission trading is analyzed from the micro-economic point of view, and the total transaction cost is analyzed by the dynamic analysis method. Then the obstacle principle of system implementation is found. Although the establishment of a market with clear property rights contributes to the reduction of total transaction costs, the rapid increase of government transaction costs in the short term has affected the implementation of the system. The conclusion is that the government should bear the short-term cost, and use the electronic trading system and establish a broad market with a wide range of participants to reduce the operating cost of the system, so as to achieve the promotion and effective operation of the emission trading system. Keywords—transaction cost theory; emission trading; system construction