Market fragmentation, liquidity measures and improvement perspectives from China's emissions trading scheme pilots

China's emissions trading pilots constitute an emerging and young commodity market. This paper compares the greater regional divergences of market rules and explores the impacts of market fragmentation and liquidity on emissions allowances prices in eight of China's emissions trading scheme (ETS) pilots using a Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model with a generalized error distribution (GED). The Hubei, Guangdong and Shenzhen ETS pilots have obviously greater market shares and higher liquidity than the Beijing, Shanghai, Tianjin, Chongqing and Fujian ETS pilots. Market fragmentations have significant impacts on emissions allowance returns in the Beijing, Guangdong and Hubei ETS pilots; illiquidity ratios and trading values have significant influences on emissions allowance returns in the Beijing, Shanghai, Tianjin, Hubei and Fujian ETS pilots; and the variances in market fragmentation and liquidity in the Beijing, Shenzhen and Hubei ETS pilots have more persistent impacts on the variances in emissions allowance returns than the Shanghai, Tianjin, Guangdong and Chongqing ETS pilots. Greater market fragmentation, insufficient allowance transactions, longer trade intervals and poorer information transparency result in lower liquidity and pricing efficiency. Finally, some suggestions are offered to improve market liquidity and pricing efficiency in China's emissions trading scheme pilots.