China to roll out absolute carbon emissions caps in key industries starting 2027, shifting from intensity-based measures.
By 2030, a nationwide emissions trading scheme (ETS) will be fully established, replacing the current pilot system.
Broader market participation, including banks and financial institutions, aims to boost liquidity and effectiveness.
China will impose absolute emissions caps in selected industries beginning in 2027, marking a major shift in the country’s approach to carbon regulation. The announcement, made by the State Council and Central Committee of the Communist Party, sets out a roadmap for expanding its national carbon market into a fully established emissions trading scheme (ETS) by 2030.
“Policymakers are now actively tightening the system,” said Xuewan Chen, senior research analyst at LSEG.
The existing framework, launched in 2021 with eight pilot markets, relies on carbon intensity benchmarks that decline over time rather than absolute caps. Under the new system, companies will still receive a quota of free carbon emissions allowances (CEAs). If they emit beyond their allocation, they must purchase additional allowances; if they come in under, they can sell the surplus.
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“The document provides much-needed transparency for the development timeline for China’s carbon markets,” said Mai Duong, Asia-Pacific carbon markets analyst with Veyt, who added that China views carbon markets as “the key tool” for its decarbonization goals.
The ETS will expand by 2027 to cover major emitting sectors, though specific industries were not listed. Analysts expect chemicals, petrochemicals, papermaking, and domestic aviation to be among those included. This builds on China’s 2023 commitment to broaden its market beyond the power sector to cover steel, cement, and aluminium — sectors that together account for about 60% of the country’s greenhouse gas emissions.
The regulation also opens participation to banks and financial institutions, a move expected to boost liquidity and strengthen price discovery. Still, experts caution that the system’s effectiveness will hinge on reducing the large share of free allowances that have so far limited the market’s impact on cutting emissions.
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