1. Over the past 15 years, China has developed the world's largest carbon market by emissions covered through progressive pilots, strengthened regulations, and expanded participation, offering valuable lessons for reconciling economic development, energy security, and climate action [para. 1].
2. The first lesson is the importance of ambition, scale, and gradual implementation. China began with seven pilot markets in 2011, adding an eighth in Fujian in 2016. After nearly a decade of preparation, it launched the national Emissions Trading System (ETS) in 2021, initially covering about 2,200 power companies. In 2025, it expanded coverage to steel, cement, and aluminum, bringing more than 3,500 companies under the system, covering roughly 8 billion tons of greenhouse gas emissions annually. By 2027, other sectors like chemicals, petrochemicals, civil aviation, and paper are expected to join. This demonstrates that credible carbon markets can be developed progressively from pilots, building institutional capacity while expanding coverage [para. 2][para. 3][para. 4][para. 5][para. 6].
3. The second lesson is that market credibility requires learning from setbacks. China's China Certified Emission Reduction (CCER) program faced low trading volumes and credit quality concerns, leading to a suspension of new project registrations and issuances in 2017. The program was relaunched in 2024 with tighter rules and stronger oversight. By the end of 2025, 18 methodologies were approved under the new framework, covering renewable energy, forestry, and methane utilization. Instead of abandoning the program, China used the intervening years to update methodologies, strengthen registration procedures, establish trading and settlement rules, and enhance third-party validation, underscoring the importance of robust regulations and continuous improvement [para. 7][para. 8][para. 9].
4. The third lesson is connecting voluntary carbon credits with compliance markets. Under China's National ETS, regulated companies can use eligible CCER credits to offset up to 5% of their compliance obligations. This linking generates additional demand, improves liquidity, and channels capital into emissions reduction projects. China's government-led approach shows how a national crediting program can complement regulated carbon pricing, and other countries can utilize credible standards to give regulators confidence in recognizing carbon credits within compliance systems [para. 10][para. 11][para. 12].
5. The fourth lesson is that carbon markets can mobilize mitigation beyond regulated industries and national borders. The CCER program complements the National ETS by financing activities outside its coverage, such as agriculture, forestry, waste management, rural energy, and methane recovery. By turning verified reductions into tradable credits, it creates financial incentives for projects that otherwise struggle to attract investment. This approach holds potential beyond China, especially in developing economies where reductions are often more cost-effective. Through international cooperation, carbon markets could channel investments there, and Chinese compliance entities could lower their costs by purchasing a limited quantity of eligible, high-integrity credits generated abroad, subject to regulatory approvals [para. 13][para. 14][para. 15][para. 16].
6. The fifth lesson is that carbon markets can deliver environmental benefits beyond reducing emissions. China's climate strategy emphasizes expanding forest carbon stocks, restoring grasslands, protecting wetlands, and developing coastal blue-carbon ecosystems. These nature-based solutions remove carbon dioxide while supporting biodiversity and local livelihoods. Well-designed carbon markets can recognize the economic value of ecosystem services while ensuring robust accounting and safeguards. Globally, carbon markets remain fragmented. Analysis estimates that eligible domestic CCER projects could supply approximately 213 million credits annually by 2030, against a theoretical maximum demand of 525 million credits if the 5% offset limit were fully utilized. Since CCER is entirely domestic, it need not remain so; Article 6.2 of the Paris Agreement provides a pathway for bilateral cooperation through internationally transferred outcomes, potentially flowing substantial financing to developing economies if the supply-demand gap is addressed [para. 17][para. 18][para. 19][para. 20][para. 21][para. 22][para. 23].
7. Internationalization, however, would require balancing national sovereignty with global acceptance. Demonstrating compatibility with internationally recognized standards would build confidence in CCER credits. There is also a geopolitical and energy security dimension: tensions in the Middle East highlight the vulnerability of fossil fuel importers, and renewable energy offers greater resilience. China's leadership in solar power, batteries, and electric vehicles presents an opportunity to combine affordable technologies, carbon finance, and local partnerships to accelerate transitions in developing economies, presenting a chance for a new form of green diplomacy [para. 24][para. 25][para. 26][para. 27][para. 28][para. 29].
8. Reflecting on the historical voyages of Zheng He, the internationalization of China's carbon market could become a modern expression of collaborative spirit, particularly with Belt and Road Initiative countries in the Global South. China is already co-chairing, alongside Brazil and the EU, the Open Coalition on Compliance Carbon Markets to seek alignment in market design and interoperability. The greatest lesson is that climate action need not be pursued separately from economic development, industrial competitiveness, or energy security. China's next opportunity is to share its experience internationally by helping partner countries build the institutions and markets needed for their own low-carbon transitions, building bridges through cooperation, knowledge sharing, and mutually beneficial investment [para. 30][para. 31][para. 32][para. 33][para. 34][para. 35][para. 36].
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