Abstract: The potential problem of excessive carbon price fluctuation in the carbon emission trading schemes is proposed based on the experience of the EU emission trading scheme (EU ETS). Then possible factors leading to excessive carbon price fluctuations and the negative effect of the excessive price fluctuation are analyzed, and the necessity of using carbon price stabilization mechanism is clarified. Several kinds of carbon price stabilization mechanism and the means of implementing them are summarized, and the potential problem of the mechanisms is analyzed. Based on the analysis above, it is proposed that a systematic, flexible, easy-to-operate and low cost carbon price stabilization scheme should be designed at the initial development stage of the China’s carbon market, incorporating mechanisms to prevent the possible carbon price spurt or collapse and mechanisms to minimize price volatility among years over the entire pilot phase, so that the carbon abatement target could be realized at a low cost.

Key words: carbon price stabilization mechanism, allowance allocation adjustment, banking and borrowing, offset mechanism, pilot carbon market