In a landmark move, China’s State Council announced a major reform to its national carbon market, with the introduction of absolute emissions caps for the first time. The new policy signals a decisive shift from the current intensity-based system and reinforces the country’s commitment to its decarbonization goals. 

The new regulations, set to begin by 2027, will initially apply to a select group of industries with stable carbon emissions. By 2030, the aim is to have a fully established nationwide emissions trading scheme (ETS) that covers the majority of China’s major carbon-emitting sectors. 

This strategic change replaces the previous system where emissions allowances were based on carbon intensity benchmarks. Under the new model, companies will be given a fixed quota of carbon emission allowances (CEAs). If a firm’s actual emissions exceed its allocated quota, it will be required to purchase additional allowances on the market. Conversely, companies that reduce their emissions below their quota can sell their surplus CEAs, providing a clear financial incentive for cleaner operations. 

Analysts are noting that the new regulation provides crucial transparency for the market’s development timeline. Furthermore, the plan includes expanding market participation to financial institutions and banks, which is expected to significantly increase liquidity and market robustness. The ETS is also slated to broaden its reach beyond the power sector to include industries like steel, cement, aluminum, chemicals, and aviation, which collectively account for a substantial portion of the nation’s greenhouse gas emissions. 

The move is seen as a pivotal step toward making China’s carbon market a more effective tool for reducing emissions, as the previous system of free allowances was widely viewed as having a limited impact on overall emissions reductions.