It's maddeningly hard to explain why China's "carbon trading" is not carbon trading as usually understood and does not establish a CO2 price at all. Seems other people giving interviews on this don't even bother, either because it's complicated or they don't want to be killjoys.

So here's an example. Say you're the operator of a 1,000MW coal power plant and you have to decide whether to run the plant tomorrow. If you do, the plant will generate 20,000 tonnes of CO2. The current CO2 price is EUR 30, so the required emissions permits are worth EUR 600,000.

The idea with CO2 trading is if you run the plant, you'll have to retire 20,000 permits. If you have those permits you lose the revenue you could have gotten by selling them; if not you'll have to buy the permits. You face a price of EUR 30 for every additional tonne of CO2.

That's how it works in Europe and on other carbon markets - but not in China.

If you're in China, the amount of emission permits you get depends on the amount of power you generate. So, if you decide to run the plant, the government gives you the additional permits for free, based on a benchmark CO2 price.

For our example power plant, if you operate tomorrow you actually get 21,000 permits, so you can sell the excess 1,000 and pocket EUR 30,000, in addition to the revenue from power generation: your carbon price is negative!

Another slighly less efficient plant might generate 22,000 tonnes and face a shortfall of 1,000 tonnes. But they're only going to pay EUR 30,000 for 22,000 tonnes of extra emissions, or 1.4 EUR/t.

So even if the price of CO2 on the Chinese market was nominally 30 EUR (actual price will be much less), no actor on the market would face anywhere near that carbon price! And many actors face a negative price - the more you generate the more the system rewards you.

If the Chinese government's purpose is to be able to say the country has a carbon trading system, without actually subjecting its power plants to a carbon price, it has done an amazing job, because this explanation is way too long&complex to be noticed amid all the hype.

Calling all communicators - if you have a simple way of explaining this I'd love to hear.

There are so many red herrings around data integrity, free allocation of permits, what the price of permits might be in the system, when other sectors might be included... none of those things matter before the intensity benchmark system is scrapped.

The carbon trading system could yet evolve into a significant tool, but we're not doing anyone any favors by pretending that the current system represents anything of significance.

In the meanwhile, the most important point to bear in mind is that the carbon market is not the main or even a very important tool in the government's toolbox. Administrative measures, targets and quotas, buttressed by inspections and enforcement, will remain central.