On 24 May 2025, China’s State Council released an 8-page top-level guidance document titled “Opinions on Promoting Green and Low‑Carbon Transformation and Strengthening the Construction of the National Carbon Market”. This marks a significant upgrade in policy hierarchy and clarity, offering a roadmap to scale and solidify China’s emissions trading scheme (ETS).
ETS Expansion to All Sectors by 2027
Full industry coverage: Within two years, all industrial sectors—including cement, steel, aluminum, chemicals, petrochemicals, building materials, paper–making, and metallurgy—will be brought under the national ETS umbrella.
Aviation joins ETS: Airlines will enter the cap‑and‑trade system by 2027. CAP confirms Phase 2 starting 2027 will bring ~1,500 additional companies and ~3 GtCO₂e of emissions into the central ETS.
Absolute Caps & Auctioning Rollout
For mature sectors with stabilized emissions, absolute caps will begin in 2027. By 2030, the entire ETS will shift to an absolute cap, complete with auctioned allowances—finally moving away from free allocation to market-based pricing.
International-Standard Carbon Pricing (Article 6 Alignment)
China commits to a robust, internationally aligned carbon pricing mechanism by 2030, enhancing the credibility of its carbon market. The policy envisions linkage with Article 6 of the Paris Agreement and deployment of tools like ETS auctions and CCER offsets, signaling readiness for global cooperation
Market Adjustment & Allowance Reserve
The plan explores mechanisms such as an allowance reserve pool and market adjustment triggers, enabling the ETS to respond dynamically to imbalances in supply and demand—bolstering system resilience.
Strategic Context & Outlook
The national ETS has grown to become the world’s largest, covering 40% of China’s CO₂ emissions via the power sector since 2021, and slated to reach 60% by including cement, steel, and aluminum. Earlier expansion phases (2024–26) used free allowances to help industries acclimatize.
Carbon prices have recently rebounded above CNY 70/t, reflecting growing investor confidence.
Implications for Markets & Stakeholders
For Market Players:
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Price signals becoming stronger and more stable, aiding long‑term investment decisions.
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Auctioning and absolute caps will encourage technology upgrades, energy efficiency, and low-carbon innovation across industries.
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For Businesses & Governments:
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Multi-level actors—national, provincial (e.g. Henan), and municipal—are rapidly reviewing the Opinions to align strategy with this policy shift.
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Energy-heavy sectors will need to prepare for measured tightening post-2027, including monitoring, reporting, and verification (MRV) reforms.
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For Global Integration:
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By aligning with Article 6, China positions its ETS as a credible partner for cross-border carbon trading, potentially enabling linkages with EU ETS, voluntary markets, or other systems.
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What Comes Next?
- 2024–2026: Continued adjustment with free allowances—allowing sectors time to adapt and improve emissions reporting.
- 2027: Full inclusion of all industries + aviation; absolute caps begin for certain sectors.
- 2030: Nationwide absolute cap and auction framework goes live; international linkage mechanisms certified.
Expert Insight
Recent research highlights the ETS’s impact:
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Studies show pilot ETS policies in the power sector reduced emissions by >10% per province, though structural and spillover effects remain a work in progress.
- China’s ETS now leads a global carbon market valued at nearly €881 bn in 2023.
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