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China's carbon market, the largest globally by emissions covered, has expanded to include heavy industries like steel and cement.
The system now regulates over 60 per cent of the nation's CO2 emissions.
This expansion marks a significant broadening since its 2021 launch, with over 1,300 new emitters added.
The market's vibrancy is evident in record trading volumes and rising carbon prices.
China’s national carbon market, the world’s largest by emissions covered, has entered a decisive new phase. According to the Progress Report of China’s National Carbon Market (2025) released by the country's Ministry of Ecology and Environment (MEE), the system now regulates over 60 per cent of the country’s total carbon dioxide emissions after bringing steel, cement and aluminum smelting into its fold this year.
The expansion marks the first major sectoral broadening of the Emissions Trading System (ETS) since its launch in 2021, when it initially covered only the power sector.
Over 1,300 new industrial emitters have been added, raising total coverage by roughly 3 billion tonnes of CO2. Officials said civil aviation is expected to be included next, with detailed methodologies already under preparation.
The report highlighted surging market activity. In 2024, trading volumes hit a record 189 million tonnes of allowances, with transaction values reaching 18.1 billion yuan. By August 2025, cumulative trading since inception had topped 696 million tonnes worth nearly 48 billion yuan.
Carbon prices have strengthened steadily. Allowances crossed 100 yuan per tonne for the first time in April 2024, peaking at 105.65 yuan in November the same year. The composite price at end-2024 was 97.5 yuan, double the 2021 launch level. Though prices dipped to 69 yuan in early 2025 amid seasonal compliance lulls, they remain resilient compared to declines in other global markets.
Officials credit a banking policy, which obliges companies to sell part of their surplus before carrying allowances forward, for curbing hoarding and stabilizing prices. “The market is functioning in line with supply-demand fundamentals,” the report noted, with enterprises showing greater willingness to trade and compliance rates reaching a historic 99.98 per cent in 2024.
Beijing has underpinned the system with new regulations. The Interim Regulations for the Management of Carbon Emission Trading, which came into force in May 2024, marked China’s first climate-specific legislation. The rules impose penalties for falsifying data, late surrender of allowances, or market manipulation, while clarifying fiscal treatment such as VAT on carbon trading.
Meanwhile, the landmark Opinions on Advancing Green and Low-Carbon Transition issued in August 2025 set a clear roadmap: By 2027, the ETS will cover all major industrial sectors, and by 2030, China aims to establish a unified, transparent market with mixed free and paid allocation of allowances.
Alongside the compliance market, the National Voluntary Greenhouse Gas Emission Reduction Market — launched in January 2024 — is gaining traction. By August 2025, 106 projects had been publicly disclosed, including offshore wind, solar thermal and afforestation.
Nearly 13 million tonnes of China Certified Emission Reductions (CCER) have been registered, with trading volumes reaching 2.7 million tonnes and prices frequently exceeding 100 yuan per tonne.
For project developers, this is creating meaningful new revenue streams. China Energy Investment Corporation’s Dongtai offshore wind project in Jiangsu, for instance, earned about 70 million yuan from CCER trading, adding 0.039 yuan per kilowatt-hour in revenue.
The report underscored continued efforts to improve data accuracy — a historic weak point. Verification parameters for sectors such as power and cement have been simplified, while intelligent monitoring systems now flag anomalies in real time. Over 3 million data entries were reviewed in 2024, with non-conformities falling by nearly a quarter.
Digital infrastructure has also matured. The National Carbon Market Information Network now provides real-time trading data, while the upgraded trading and registration platforms process thousands of enterprise accounts and transactions daily.
China is also linking its market more closely to global systems. It renewed an MoU with the European Union on emissions trading, advanced technical cooperation with Norway, and hosted dialogues with developing nations from Cuba to Nigeria on building carbon market capacity. At COP29 in Baku, Chinese negotiators pushed for clearer rules under Article 6 of the Paris Agreement to enable cross-border carbon trading.
The ministry said over the next two years it will focus on consolidating the expansion and preparing for stricter allowance caps post-2027. By then, enterprises will face tighter emissions limits, moving from an intensity-based approach to absolute caps.
President Xi Jinping has framed the carbon market as central to China’s “dual carbon” goals of peaking emissions before 2030 and reaching neutrality before 2060. As the report concludes, the market has shifted corporate thinking: “Emissions now come at a cost, and reductions bring benefits.”
With more sectors entering, stricter compliance and trading products diversifying, China is positioning its carbon market not only as a domestic policy lever but as a global benchmark.