Analysis: China Unveils Key Upgrades for National Carbon Market

China has released a new, top-level strategic roadmap designed to enhance its national carbon market, the largest in the world in terms of emissions covered, with the goal of making it more effective, dynamic, and influential on a global scale. The roadmap, issued by the Central Committee of the Communist Party of China and the State Council, outlines several major reforms including the introduction of absolute emissions caps, expansion of the emissions trading scheme (ETS), and the development of its voluntary carbon credits program [para. 1][para. 2]. Experts view these actions as confirmation that the carbon market is now at the core of China’s national policy instruments for climate action [para. 3].

A significant focus of the new directive is transitioning from regulating emissions based on intensity (emissions per unit of output) to absolute caps on total carbon emissions for key high-emitting sectors by as early as 2027. This is a fundamental policy shift that aligns with China’s broader adoption of a dual-control system for carbon emissions, which will regulate both the total volume and intensity of emissions starting in 2026. The new approach aims to provide clearer, more enforceable targets to major industries and make reductions more effective and manageable [para. 4][para. 5][para. 6][para. 7].

Currently, the ETS covers over 3,500 companies in four industries: power, steel, cement, and aluminum smelting. The present system grants free permits largely based on emissions intensity, encouraging production efficiency without limiting total output or emissions. This means that higher total production can still lead to rising emissions despite improved efficiency. For example, total emissions from companies within the ETS increased from about 4.5 billion tons in 2021 to 5.2 billion tons in 2023. According to experts, to achieve carbon neutrality by 2060, China’s market must move from intensity-based to volume-based emissions control [para. 8][para. 9][para. 10][para. 11].

The expansion of the ETS is another key goal, with plans to incorporate virtually all major industrial emitters by 2027, further strengthening the market’s influence and effectiveness in guiding emissions reductions. While the directive does not specify precisely which additional industries will be included or when, likely candidates mentioned include petrochemicals, aviation, and paper-making, all of which have been reporting emissions for years [para. 12][para. 13][para. 14][para. 15].

China also plans a significant upgrade of its voluntary carbon credits program, the China Certified Emission Reduction (CCER) scheme. By 2027, CCER will cover all key sectors and is set to become globally integrated within the next five years. This international connectivity could bolster global efforts such as those mandated by the Paris Agreement, notably enabling nations to trade carbon credits to meet climate targets collaboratively [para. 16][para. 17]. However, realizing an internationally linked carbon market will be complex and long-term work, requiring harmonization with mechanisms like the EU’s Carbon Border Adjustment Mechanism and further opening China’s carbon market to international participants [para. 18]. Chinese officials affirm their commitment to advancing cross-border carbon trading and international climate cooperation through the expanding carbon market as part of ongoing climate governance reforms [para. 19][para. 20].