China’s national carbon market has accumulated trading of about 61.9 billion yuan over five years, with more than 3,000 entities included in quota management.

2026 is the starting year of the “15th Five-Year Plan (2021–2025) into the next phase,” and it is also the fifth anniversary of the national carbon emissions trading market’s operation.

The market is ushering in unprecedented new changes: the three major industries of steel, cement, and aluminum smelting have been included in the national carbon emissions trading market, and—together with the power generation industry—they will enter full compliance years.

Will allowances become tighter and tighter? Industry insiders told a reporter from 21st Century Business Herald that, currently, the official carbon allowance allocation plan has yet to be released. With the time to reach peak carbon emissions drawing closer, judging from the allocation of allowances to the power industry since the national carbon market began operating, a pattern has emerged of the benchmark line declining year by year while the allowance shortfall widens year by year.

According to policy deployment, by 2027, the national carbon emissions trading market will basically cover major emitting industries in the industrial sector. Relevant units such as petroleum refining, chemical industry, building materials (flat glass), non-ferrous metals (copper smelting), papermaking, and civil aviation will be brought into the scope of annual greenhouse gas emissions reporting management.

Who will be the next “new member” to be included? Industry insiders analyze that the petroleum refining and papermaking industries—where product standardization is relatively high—are expected to enter first.

As the “Beautiful China Construction ‘15th Five-Year Plan’” puts “a decline in product carbon emissions covered by the national carbon emissions trading market” among its main indicators, an industry-wide “green exam” is being comprehensively upgraded—one that uses the carbon price as a signal and emission reductions as its goal.

Trading value reaches 61.9 billion yuan

The carbon market is a major institutional arrangement to actively address climate change and promote a green, low-carbon transition in economic and social development through market mechanisms. It is an internationally accepted climate governance policy tool.

According to data from the Shanghai Environment Energy Exchange, as of July 6, 2026, the cumulative traded volume of carbon emissions allowances in the national carbon market was about 920 million tons, and the cumulative traded value was about 61.9 billion yuan.

“China has built the world’s largest carbon emissions trading market and maintained stable operations.” In September 2025, Huang Runqiu, Minister of Ecology and Environment, said at a press conference held by the State Council Information Office that the market covers more than 60% of China’s carbon emissions. It also launched a voluntary greenhouse gas emissions reduction trading market, accelerating the establishment of a product carbon footprint management system. The endogenous driving force and innovation vitality of green development have been significantly enhanced.

Yang Su, an expert from the preparatory group of the Carbon Governance Basic Research Institute at the State Grid Energy Research Institute, told a reporter from 21st Century Business Herald that China has included four major high-energy-consuming industries—power generation, steel, cement, and electrolytic aluminum—into the national carbon market, thereby building a carbon-reduction and control platform covering core emission areas. In 2025, there were 3,378 key emitting units under allowance allocation management in the national carbon market, including 2,087 key emitting units in the power sector, 232 in the steel sector, 962 in the cement sector, and 97 in the aluminum smelting sector. At present, carbon emissions from the power industry account for about 40% of the national total, while the combined emissions of the four industries account for about 60%.

According to statistics from industry experts and publicly available information, among the four industries currently included in the national carbon market—power generation, steel, cement, and electrolytic aluminum—the annual total carbon emissions and their shares of the national total are as follows: power generation is about 5 billion tons, accounting for about 40% of China’s total carbon dioxide emissions; steel is about 1.7 billion tons, accounting for about 15%; cement is about 0.9–1.0 billion tons, accounting for about 9%; and electrolytic aluminum is about 0.5 billion tons, accounting for about 5%.

Xia Yingzhen, Director of the Climate Change Response Department of the Ministry of Ecology and Environment, said in an interview with 21st Century Business Herald, “China’s carbon emissions are mainly concentrated in key industries such as power generation, steel, building materials, non-ferrous metals, petroleum refining, chemical industry, papermaking, and aviation. These eight industries account for about 75% of China’s carbon dioxide emissions.”

This year, according to the “Notice on Doing Well in Relevant Work for the National Carbon Emissions Trading Market in 2026” (hereinafter referred to as the “Notice”), relevant units such as petroleum refining, chemical industry, building materials (flat glass), non-ferrous metals (copper smelting), papermaking, and civil aviation have been included in the scope of annual greenhouse gas emissions reporting management.

Meng Bing, Chief Dual-Carbon Officer at Beijing Zhongchuang Carbon Investment Technology Co., Ltd., told a reporter from 21st Century Business Herald that among the four remaining industries awaiting inclusion—papermaking, petroleum refining, chemical industry, and aviation—petroleum refining and papermaking are likely to be prioritized because their products are relatively standardized. The chemical industry is expected to come later due to the large variety of product types and complex process flows, which makes benchmark-method allocation more difficult and puts it relatively further down the order. Aviation, meanwhile, is relatively special because it mainly involves mobile-source emissions, and emissions may involve cross-border aspects, making the advancement pace somewhat unique.

Liang Xi, Deputy Secretary-General of the Climate Investment and Financing Professional Committee of the Chinese Society for Environmental Sciences and a professor at University College London, told a reporter from 21st Century Business Herald that the refining segment in the petroleum refining industry is relatively feasible. However, petroleum refining and coal chemical industry involve many complex processes, a wide variety of products, and large differences in process routes, making it difficult to establish a unified carbon emissions benchmark line for allowance allocation. The difficulty in formulating such a benchmark line directly constrains the pace of industry inclusion. If the issue of allocation basis is not addressed, the future may move toward full paid allocation and the gradual elimination of free allowances—but that would require further support from the carbon market’s maturity and strengthened emission-reduction policies.

Yang Su suggested that potential expanding enterprises such as those in petroleum refining and chemical industry need multi-dimensional planning: first, improve the MRV system, precisely calculate carbon emissions according to the accounting guidelines, and solidify the data foundation; second, set up carbon management positions, fully draw on the experience of enterprises already in the market, formulate phased emission-reduction targets, and integrate carbon management into corporate strategy; third, focus on high-emission segments, develop energy-saving and carbon-reduction technologies, and participate in industry carbon-reduction innovation; fourth, track policy developments in the carbon market, become familiar with trading procedures and rules, and conduct forward-looking research on potential allowance surpluses and deficits; fifth, learn about carbon financial instruments in advance to respond to risks from carbon price volatility.

Carbon allowances are gradually getting tighter

Under the “Notice” arrangements, by December 31, 2026, key emitting units in the power generation, steel, cement, and aluminum smelting industries must complete the settlement and true-up of 2025 carbon emissions allowances on time and in full.

“For enterprises with insufficient allowances, additional environmental costs are directly linked to both the allowance gap and the carbon price.” Yang Su told a reporter from 21st Century Business Herald that the carbon price level in the first half of 2026 has risen compared with previous years. The allowance surplus/deficit pattern for industries newly included in the market is basically clear, and the overall situation is balanced. It is expected that, in the short term, carbon market prices will not experience major fluctuations. The carbon price trend in the second half of the year will still depend on when related policies are introduced and on the market trading conditions during the year-end compliance period.

Yang Su said that, based on the allowance allocation in the power industry since the national carbon market began operating, it shows a pattern of the benchmark line declining year by year and the allowance shortfall widening year by year. According to the “Allowance Total and Allocation Plan for the Steel, Cement, and Aluminum Smelting Industries in the National Carbon Emissions Trading Market for 2024 and 2025,” for newly included steel, cement, and aluminum smelting industries, overall the allowance surplus/deficit is basically balanced, so the first-year carbon cost pressure will not be too high. This is also to ensure these enterprises enter the market smoothly and complete the transition.

Recently, the “Beautiful China Construction ‘15th Five-Year Plan’” (hereinafter referred to as the “Plan”) proposed 18 main indicators for beautiful China construction during the “15th Five-Year Plan” period, and “a decline in product carbon emissions covered by the national carbon emissions trading market” has become one of the expected indicators.

“The Plan expects that by 2030, product carbon emissions covered by the national carbon emissions trading market will decline by 3%.” Meng Bing told a reporter from 21st Century Business Herald that this indicator is an industry-level unit-product carbon emissions intensity indicator. China’s carbon emissions intensity indicators generally fall into two categories: one is unit GDP carbon emissions intensity (such as a binding target to reduce carbon dioxide emissions by 17% per unit of domestic GDP); the other is unit-product carbon emissions intensity for specific industries. For example, for the steel industry, it means calculating the unit-product carbon emissions per ton of steel.

Liang Xi believes that the allowance allocation methodology still needs continuous optimization. Even for industries that have already been included, there is still room to improve the allowance allocation methodology. The scientific rigor and precision of the methodology directly determine the effectiveness of market operation. In addition, exploring the allowance auction mechanism in the future is also important. Whether auctions can be carried out, and how auction proceeds can better support low-carbon and zero-carbon technologies, are directions worth focusing on.

CCER methodology total reaches 18 items

The national voluntary greenhouse gas emissions reduction trading market is an important policy tool for actively addressing climate change and accelerating a comprehensive green transition in economic and social development. Since it began in January 2024, the market has achieved a stable start and orderly operations, and its role in promoting carbon reduction and increasing carbon sinks, as well as guiding green investment, has begun to show.

According to data from the Beijing Green Exchange, as of July 6, 2026, the national voluntary greenhouse gas emissions reduction trading market had a cumulative traded volume of 15,351,880 tons and a cumulative traded value of 1,156,074,930.63 yuan.

Expanding the supported fields of the national voluntary greenhouse gas emissions reduction trading market is an important measure to incentivize more industries and enterprises to reduce emissions on their own. Meng Bing said that since the restart of the CCER market, the top-level design has basically been put in place, trading rules are gradually being improved, and methodologies are being continuously expanded. By the beginning of 2026, the total number of CCER methodologies in China reached 18 items, and the overall market is in a healthy growth stage.

Recently, the Ministry of Ecology and Environment publicly solicited comments on the “Methodology for Voluntary Greenhouse Gas Emission Reduction Projects—Afforestation and Carbon Sinks (Revised Draft for Soliciting Comments)” and the “Methodology for Voluntary Greenhouse Gas Emission Reduction Projects—Mangrove Establishment (Revised Draft for Soliciting Comments).”

Meng Bing believes that the core change in this revision is that it moderately expands the categories of land types applicable to projects—for example, bringing highway greening and land for industry and mining into scope. It also provides more diversified options for proving the ownership of carbon sink rights, no longer limited to forest tenure certificates, thereby lowering the threshold for ownership proof in project development. These adjustments will release some incremental space, and the development potential of carbon sink projects is expected to be greatly improved compared with the previous-version methodology.

However, in the trading market, the actual supply of CCER still appears insufficient. Meng Bing said that, based on the current designed capacity of the carbon market (referring to a 5% offset ratio), existing supply cannot meet potential demand. In 2025, the national voluntary greenhouse gas emissions reduction trading market’s average transaction price for the full year was 70.76 yuan/ton, while the national carbon emissions trading market’s average transaction price for the full year was 62.36 yuan/ton, resulting in an “inversion” between CCER and carbon allowance (CEA) prices.

Judging from the evolution trend of long-term price relationships, Yang Su said that as CCER methodologies are released one after another and project emission-reduction volumes are gradually realized, the supply-demand relationship affects prices, which are broadly close to or slightly lower than allowance prices. Tightening carbon allowances will directly increase enterprises’ demand for CCER, pushing CCER prices to converge toward carbon allowances. The two price trends will show stronger linkage, jointly reflecting the market’s emission-reduction costs.

In addition, as the carbon market system continues to improve, the prices of the two will increasingly be jointly determined by market supply and demand, emission-reduction costs, and policy expectations, gradually forming a market-based pricing mechanism that can truly reflect the value of emission reductions.

But it can also be noted that CCER use cases are not limited to the offset mechanism. They can be applied in areas such as corporate carbon neutrality, events, and parks. If future relevant policies promote a large expansion of CCER application scenarios, it is also possible that the correlation between CCER and carbon allowance prices will weaken.

【Author: Lei Ye, Li Deshangyu】 (Edited by: Wen Jing)

Key words:

                                                            carbon market