The People’s Republic of China (PRC) is being impacted by climate change. The resulting degradation and desertification of grasslands are projected to lead to decreased productivity and severely affect livestock and ecosystems. Financial incentives are required to improve environmental management of grasslands and reduce greenhouse gas emissions in the grassland sector of the PRC. This publication summarizes the legal and policy framework for incentive programs, assesses the impact of three main incentive programs on soil carbon stocks, and analyzes the implications of these existing incentive mechanisms for the development of grassland carbon finance projects for domestic carbon markets.

Carbon emissions trading markets are one of the main policy mechanisms of the People’s Republic of China (PRC) to encourage the reduction of greenhouse gas emissions. Grasslands cover 40% of the PRC’s land area, and these contain large amounts of carbon. Restoration and sustainable management of these grasslands have large greenhouse gas mitigation potential. This publication assesses the potential of carbon market mechanisms to support the achievement of grassland policy objectives. It also reviews the state of national policy regarding climate change mitigation, particularly carbon markets, and outlines opportunities and challenges in producing carbon offsets from grasslands.