China has announced that it will expand its carbon market to include all major industrial emitters by 2027. This decision is part of a broader strategy to accelerate the transition to a low-carbon economy by implementing market mechanisms as an emissions regulator.
According to the Ministry of Ecology and Environment (MEE), the target is aligned with the Communist Party Central Committee’s recommendations for the 15th Five-Year Plan (2026-2030). These state the need to expand China’s Carbon Emissions Trading Exchange to more strategic economic sectors.
New industries will be added to the system
The chemical, petrochemical, civil aviation and paper industries have been identified as the next candidates to enter the emissions trading system. The MEE has already begun the technical and regulatory work necessary for their gradual incorporation, although their entry is conditional upon compliance with strict data quality and emission control standards.
Currently, the Chinese carbon market covers the steel, cement and aluminum smelting sectors, which were incorporated in March 2025. These sectors are among the largest emitters of greenhouse gas emitters in the country, so their regulation represents a key step towards meeting the country’s environmental commitments.
Compliance rules and quota allocation
Issuers in these sectors must comply with the quotas assigned for 2024 before the end of this year. Quotas for 2025 will be pre-allocated during the first half of next year, and compliance will be required by the end of 2026.
This system obliges companies to stay within an allowable emissions limit, and to purchase additional permits if they exceed it, creating a functional emissions trading market.
Technical conditions for integrating new sectors
MEE has made it clear that new sectors will only be added when they demonstrate robust technical capabilities in terms of data quality, emissions measurement and traceability. This requirement seeks to ensure the integrity of the system and avoid practices that could distort the functioning of the market.
Xia Yingxian, an official with the Ministry of Ecology and Environment, noted that the expansion of the carbon market aims to strengthen mitigation responsibilities on the part of industries and, at the same time, boost investment in low-carbon technologies.
A Chinese model of environmental governance
With this expansion, China is consolidating a model of environmental governance that combines state planning, climate targets and market tools. The implementation of a nationwide carbon market aims not only to reduce the country’s climate footprint, but also to send a clear signal internationally about the commitment to a green and sustainable economy.
As 2027 approaches, the performance of the system and its ability to adapt will be key to measuring the real impact of these policies on China’s industrial fabric.
Source: State Council of the People’s Republic of China
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