China to Further Expand ETS Coverage by 2027, Shift to Cap and Trade by 2030
The Chinese government is eyeing a further expansion of the national emission trading scheme or ETS to more sectors by 2027 and a transition into a cap-and-trade system with paid and free allocations by 2030, according to a directive released on Aug. 25.
The release covers a comprehensive list of opinions, with the approval of the CPC Central Committee and the State Council, to strengthen its national carbon market and use it as a core tool to achieve its green and low-carbon transition goals.
It sets two major deadlines: by 2027, the national ETS should be expanded to cover major industrial sectors, and by 2030, be fully transitioned to a total quota control system, moving away from its current intensity-based model. China’s ETS began trading in 2021 with the power generation sector, and was expanded in 2024 to include aluminum, steel, and cement.
The government is expected to increase the proportion of paid carbon allowances in phases based on sector readiness, to make the market more effective and drive companies to reduce their emissions. The scheme currently allocates free allowances to all obligated entities. A quota reserve and market stabilization mechanism will also be introduced to strengthen market stability and liquidity.
In a move to boost liquidity, the directive also outlines plans to allow more participants, including financial institutions, and to encourage the development of new financial products like carbon pledges and buybacks.
On the voluntary market, the government aims to bring key sectors under the Chinese Certified Emission Reduction or CCER scheme by 2027, with full alignment to international standards targeted by 2030. The scheme, relaunched in January 2024, currently includes six methodologies with four more under public consultation, and allows credits to offset up to 5% of compliance obligations under the national ETS. Beyond compliance, the government also seeks to expand voluntary CCER use, including supporting enterprises in meeting international obligations.
CCERs were previously eligible for use under the International Civil Aviation Organization’s CORSIA pilot phase (2021–2023). Following the program’s transition into Phase 1, including the requirement of having corresponding adjustments, the country is not known to have reapplied to the program for airline emission offsetting.
China’s carbon market is expected to strengthen its integrity through a multi-pronged approach that combines stricter regulations with advanced technology. The government can leverage technologies like big data and blockchain to enhance supervision and ensure the accuracy of emissions data. At the same time, there will be crackdowns on fraudulent activities within the market.
At the same time, the government will improve the overall management of its carbon reduction resources by standardizing all forms of voluntary emission reduction trading.
On the international stage, the opinions state that China will actively participate in developing global carbon market rules under the Paris Agreement and promote the mutual recognition of its standards and technologies with other countries.
–Reporting by Sang Ah Lee, slee@opisnet.com; Editing by Lujia Wang, lwang@opisnet.com and Mei-Hwen Wong, mwong@opisnet.com