In Climate Push, China Expands Carbon Market to Big Polluters

Facing mounting climate risks and aiming to rein in heavy industry emissions, China is expanding its national carbon market to cover three of its most polluting sectors.

The move brings steel, cement, and aluminum smelting into the national emissions trading system for the first time, raising the market’s coverage from 40% to more than 60% of China’s total CO2 emissions.

According to the Ministry of Ecology and Environment, these industries release around 3 billion metric tons of CO2 annually — over a fifth of the national total — making their inclusion a critical step toward meeting China’s 2030 carbon peak and 2060 carbon neutrality targets.

Until now, the national carbon market covered only the power sector, with officials pledging to include other major emitters “in the future.” The new expansion adds around 1,500 companies from the steel, cement, and aluminum industries to the existing 2,200 power firms already in the system.

“Despite the current international political climate and the economic pressures at home, the central government has still moved forward with its planned market expansion. This shows a strong political will to achieve the country’s dual carbon goals,” Shen Xinyi, a researcher at the Centre for Research on Energy and Clean Air, told Sixth Tone. “There is real action behind the rhetoric — it’s not just talk.”

Launched in 2021, China’s national carbon trading market allows companies to buy and sell government-issued emissions permits based on how much they pollute. Firms that emit less than their quota can sell unused allowances, while heavier polluters must purchase more to comply — creating financial incentives to cut emissions.

By volume, it is the world’s largest carbon market and part of a growing global trend: as of 2024, 36 emissions trading systems are in operation, with 22 more under development across jurisdictions representing 58% of global GDP.

The updated system will also expand its coverage beyond carbon dioxide to include two other potent greenhouse gases: tetrafluoromethane (CF4) and hexafluoroethane (C2F6). While carbon dioxide is the main emission from the power sector, the newly added industries — especially aluminum smelting — also release CF4 and C2F6, which have global warming potentials thousands of times greater than CO2.

The expansion is also expected to boost emerging sectors like green finance, helping to create a cycle of “investment-emission reduction-returns-reinvestment,” according to the Ministry of Ecology and Environment.

One of the most significant changes, experts say, is the plan to introduce sector-specific caps starting in 2027 — a shift that would place clearer limits on emissions and gradually tighten them over time.

According to Shen, companies still lack strong economic incentives to pursue low-carbon transitions. She explained: “The first phase of this plan is designed to be an adjustment period, to give companies some buffer time. But the requirement will become harsher after 2027. Given the scale of the climate risks China is facing, we may need to accelerate our efforts to peak emissions and achieve carbon neutrality.”

Editor: Apurva.

(Header image: VCG)