China Carbon Emissions Market 2026 – 2035

Reports Description

The market size of the China carbon emissions market is estimated to be around CNY 125 billion (USD 17.5 billion) in 2025 and is estimated to grow to an average of CNY 520 billion (USD 72.8 billion) between 2026 and 2035 with a CAGR of 13.45%.

The shift to the approach of an absolute cap by the year 2027 and the intensity-based approach, sectoral expansion that includes 1,500+ entities in the steel/cement/aluminum industry, the EU Carbon Border Adjustment Mechanism to increase carbon prices, the commitment of the government to reach the peak level of emissions by the year 2030 and achieve carbon neutrality by the year 2060, the enhancement of regulatory enforcement and compliance measures, and the introduction of the national CCER voluntary offset market stimulate the market evolution.

Market Highlight

• The Chinese national ETS is the largest carbon market in the world in terms of emissions coverage, at about 8 billion tonnes of CO₂ each year, which is about 20% of all global emissions.

• Resolution: 40% increased to greater than 60% of total CO₂ emission in China after expansion of sectors post 2024-2025 that included steel, cement and aluminum industries.

• 3 Performance to year 2025 Cumulative trading volume of 696 million tonnes of transaction value of CNY 66.74 billion (USD 9.3 billion) by the end of August 2025.

• In 2024, the total trading amounted to 189 million tonnes, and the transaction value was a record CNY 18.11 billion (USD 2.5 billion), which is an increase in the average daily volume of 43.55%.

• In 2024, China contributed 29% of the total greenhouse gas emissions in the world, with the average price of carbon being CNY 98 (USD 13.70) per tonne versus USD 80 per tonne in the EU ETS.

• National ETS framework By 2027 with absolute emissions caps in lieu of the current intensity-based approach after the August 2025 policy directive Foundational completion.

Significant Growth Factors

The China Carbon Emissions Market Trends present significant growth opportunities due to several factors:

• Transition to Absolute Caps and Market Maturation:

The move by China to change the national ETS to an absolute cap approach by 2027 represents a significant change to the largest carbon market in Asia, and this fundamental rebranding of the Chinese system with the best practices in international markets such as the EU ETS will establish true scarcity leading to significant carbon prices and emission cuts.

The transition to absolute caps is a significant move towards making the ETS in China consistent with the global best practice, with absolute caps as the foundation of mature cap-and-trade systems such as the EU ETS that led to a reduction in the amount of carbon dioxide equivalent emissions from 4.6 billion tonnes in 2005 to 3.2 billion tonnes in 2024, proving that a properly structured cap-and-trade system can be effective. Within the current system of intensity, firms get permit credits in proportion to the level of production output, using a carbon-intensity metric, which implies that the total carbon emissions may increase along with the level of economic growth without imposing a pressure to comply, leading to excess allowance that pushes prices below the level where the firms experience a substantial incentive to invest in meaningful decarbonization strategies or adjustments in operations that lead to a reduction in carbon emissions.

The August 2025 policy framework under the name of Opinions on Promoting Green and Low-Carbon transformation and strengthening the establishment of the national carbon market outlines the roadmap for advancing a unified national emissions trading market with an emphasis on consistent market expansion by adding more sectoral coverage, diversifying the participation of actors, and deepening trade instruments that generate a complex trading environment to match the established global carbon markets.

The transition removes the inherent flaw of the existing system in which companies will be allowed to keep their production levels high without necessarily reducing their absolute emissions but rather provide hard limits both on emissions and on allowance volumes to set the system to generate meaningful carbon prices, introduce stronger decarbonization incentives, and make overall emissions fall in line with the China carbon peak before 2030 and carbon neutrality by 2060 objectives. In industry analysis, it has been shown that an absolute cap would push prices upward to unprecedented levels of carbon prices of between CNY 300-500 per tonne in order to have a significant effect on the decision-making processes of heavy industry and deliver real reductions to the national climate targets.

• Sectoral Expansion Doubling Market Coverage:

The 2024-2025 sectoral expansion of the steel, cement, and aluminum smelting industries amounts to a transformative expansion of the market coverage as it introduces 1,334 new emitting units and an estimated 3 billion tonnes of carbon dioxide equivalent annual emissions in a regulated market, increasing the coverage of the ETS to over 60% of the total carbon emissions nationwide and extending regulation to tetrafluoromethane (CF₄) and hexafluorobenzene (C₆F₆).

The National ETS, which was initially released in July 2021 and is currently restricted to the power sector, now applies to several heavy industries that collectively constitute the most carbon-intensive economic activities in China, and national climate targets mandate the decarbonization of which must not come at the cost of neglecting the focus on industrial competitiveness and economic development.

The phased integration plan strikes a balance between compliance costs and market stability, new areas covered by the phased approach would be subject to 2024 allowances based on verified emissions, and this stage will lead to relative ease in the first year of compliance, against which the introduction of the 2025-2026 phase would allow acquaintance with market mechanisms before the absolute cap framework is eventually introduced in 2027 when system-wide reforms are fully implemented. Phase 1 (2024-2026) under the implementation plans published in March 2025 after a public consultation in September 2024) is devoted to introducing companies to the requirements of the national ETS and improving the quality of the data they have to report by means of capacity building programs that have provided specific training sessions to more than 900 enterprises where companies are testing the functionality of the platform and conducting empirical drills to be aware of the rules, reporting requirements, and compliance mechanisms before the enforcement of regulations becomes more stringent.

The proposed extension of coverage to other key emitting sectors by 2027 such as chemicals, petrochemicals, building materials, papermaking, ferrous metals and aviation would further increase national coverage to around 70-80% of total emissions that sets up comprehensive regulatory structures that make carbon costs part of economic decision making in almost all key industrial sectors that will create national-scale transformation into low-carbon developmental paths. Over 2,200 players in the power sector now also engage with a cumulative coverage of over 5.2 billion tonnes of annual CO₂ emissions, and an estimated 1,500 more players are in the freshly covered sectors whose total participants are heading to 3,700 players representing the largest industrial players in China whose operations and investments will dictate the national emissions trend over the next several decades.

What are the Major Advances Changing the China Carbon Emissions Market Today?

• EU Carbon Border Adjustment Mechanism Response and Competitiveness Pressures:

The introduction of the Carbon Border Adjustment Mechanism in 2026 by the EU will give a great incentive to China and other Asian markets, which are strengthening their carbon pricing systems, to be competitive in exports and utilize carbon proceeds domestically instead of paying border adjustment fees to the European Union. Imports from countries with weaker climate policies will incur carbon costs in the form of lower carbon coverage and prices, which is why there is a pressing necessity in ensuring that countries such as China developing carbon markets are competitive in exportation as opposed to those with effective carbon pricing schemes by ensuring that revenue leakage in the form of CBAM taxes paid to the EU is substituted with revenue generation to be used locally.

In 2024, Asia contributed to EUR 1.1 trillion of the total EU imports (excluding intra-EU trade), with China being the largest importing partner to the EU with EUR 519 billion, proving to be a big trade exposure with economic stakes in carbon pricing policies governing the competitiveness and profitability of its Chinese manufacturers operating in the European markets.

The initial CBAM estimates indicated that China’s steel and aluminum industries would require paying some RMB 2-2.8 billion in the form of adding costs to the steel and aluminum industries amounting to RMB 652-690/tonne and RMB 4,295-4,909/tonne respectively, the increase would be recorded as a result of the industry paying domestic carbon costs and EU border charges under some of the conditions mentioned above. As the EU ETS will trade at an average of USD 80/tCO₂e in the first nine months of 2025 as opposed to just USD 11/tCO₂e for the carbon credits in China, domestic carbon prices must be substantially increased to keep the carbon revenues in the country rather than transferring wealth to the EU via border adjustment payments, a direct connection between the international trade policy and the development of the domestic carbon market.

The Chinese government follows the two-fold response strategy of the CBAM that involves both diplomatic objections by the WTO and international climate conferences such as COP 29, and the active fortification of the national carbon market as the practical mechanism of response and protects against the issues of protectionism due to the unilateral action of developed countries to use trade measures to restrict its global carbon policy. Carbon pricing gap opens arbitrage and competitiveness issues, where Chinese exporters may find themselves at a disadvantage compared to others in jurisdictions where carbon prices are set to rise to EU levels, where there is a market pressure on countries to increase their domestic price and gain parity with international standards that would support domestic investments in climate initiatives instead of foreign government funds.

• National Voluntary Carbon Market Launch and Offset Integration:

The introduction of the national January 2024 China Certified Emission Reduction (CCER) program after suspension and revision since 2017 creates credible, transparent, and unified voluntary greenhouse gas emission reduction markets consistent with international standards and with the provision of the offset mechanism where compliance entities can reduce their costs by buying verified emission reduction credits of qualified projects.

The revised methodology, the new registry by the National Center of Climate Change Strategy and International Cooperation, the dedicated trading platform in the Beijing Green Exchange, and the accredited validation/verification agencies form a solid infrastructure to facilitate the development of voluntary markets, of which five accredited certification agencies have been approved so far and more than 70 emission reduction projects have requested to be accredited as CCERs have good preliminary interest. As of March 2025, nine projects had successfully been able to issue emission reductions to a total of 9.48 million tonnes of CO₂ equivalent, and the trading activity in the Shanghai carbon market recorded 122,400 tonnes of CCER of emission reduction that month as evidence of a sharp rise compared to the previous month, but with supply-demand dynamics, the market has structural tensions as few projects are being approved to supply the offsets needed to meet the growing demand due to the extension of the ETS coverage.

The offsetting feature of the compliance framework has enabled the entities submitting qualified credits in lieu of part of the compliance requirement, and the offset limits and requirements strike a balance between cost containment goals and ensuring that carbon prices are kept sufficiently high to encourage direct emission reductions instead of overreliance on the offsetting undermining of environmental integrity, based on experience with other trading systems where unlimited application of offsets undermined the prices and held up the direct emission reductions.

The voluntary market promotes the engagement of the entire society in the emissions reduction outside regulated sources, giving those who develop projects monetizing the verification of reductions in renewable energy, forestry, methane capture, energy efficiency, and other mitigation projects that can generate extra sources of revenues in the fight against climate change and offering buyers of allowances that do not need to pay a fine an alternative to another purchase of allowances or the adoption of internal abatement efforts. Registry data indicate that in 2024, more than 4,500 new accounts registered in the CCER system and 40+ CCER project owners, 1,220+ national and local key enterprises, and many investment institutions and trading organizations indicate widespread stakeholder participation. Attesting to the creation of a liquid, functioning market to supplement a mandatory trading system.

• Enhanced Compliance Monitoring and Enforcement Mechanisms:

The increase of regulatory oversight, emissions verification, and compliance enforcement is the critical area of priority in tackling the issue of data quality, prevention of fraud, maintenance of environmental integrity, and establishment of market credibility that is vital in the process of price discovery and investor assurance regarding the China carbon trading system. Compliance reports by the ministry of ecology and environment reported that there are frauds in emissions and third party verifiers who audit the emissions data of the power companies and this shows that stricter rules have to be enforced and that the monitoring systems need to be made effective to avoid the case of manipulations and inaccuracy to give true figures of the emissions, as such accurate information will make allowance allocations and compliance decisions.

In August 2023, the Supreme People’s Court and Supreme People’s Procuratorate explained that the carbon market participants such as emission verification agencies, consulting agencies, and inspection agencies are subject to criminal jurisdiction, with sentencing norms set to act as a deterrent to fraudulent actions and indicative of a serious attitude to the integrity of the system by the state through prosecuting people that violate the system and undermine the credibility of verification agencies. Improved surveillance tools such as continuous emissions monitoring systems (CEMS), geographic verification, artificially intelligent anomaly detection and blockchain-recorded transactions maximize the quality of data and minimize the possibility of manipulation, and the costs of technical infrastructure supplement the legal frameworks that establish multi-layered compliance assurance that some of the early trading systems lacked in other jurisdictions.

Capacity-building programs provided specialized training to more than 900 enterprises in new covered steel, cement, and aluminum industries that acclimatized participants to market rules, reporting requirements, verification procedures, and compliance mechanisms with practical platform functionality tests and empirical drills ensuring compliance before the tougher enforcement begins enhancing data quality to support accurate accounting of emissions. The integrated account opening feature introduced on the National Carbon Market makes the process very easy and saves time on account opening by over 70%, cutting down on administrative overheads of enterprises and ensuring security and control at the same time that the market will remain easy to join and have strongly enforced controls.

• Financial Market Development and Trading Innovation:

Development of simple spot trading to sophisticated financial instruments such as forwards, futures, options and structured products is the liquidity development in the market and the maturity of the market so as to allow risk management, institutional investors and the price discovery mechanism which will make informed business decisions and long term planning in line with decarbonization goals. Concentrating trading in the Shanghai Environment Exchange offers standardized marketplace, open price, guarantee of settlement and regulatory supervision that has created a reliable trading environment where allowances can be traded effectively as the trading volume on the day shows how the market is getting livelier as participants get familiar and trust in the mechanisms, and compliance deadlines are compressing trading activities.

National ETS traded 242 days in 2024 with average daily trading volume rising 43.55% over the prior compliance cycle indicating rising market participation and sophistication with the fourth quarter of 2024 accounting for 79% of the full-year volume, representing a typical marking-to-market period concentration where entities get their positions on before surrender deadlines inducing liquidity and price discovery.

The cumulative trading volume of 696 million tonnes and transaction value of CNY 66.74 billion by the end of August 2025 indicate a significant growth of the market since the launch in 2021, although traded volumes are only a part of the total allowances issued as long as the market still relies on initial allocations and not secondary market transactions, which results in the possibility of much higher trading volumes as the market matures and the absolute caps impose the necessity to purchase the allowances.

Banking policy that permits entities to carry forward excess surplus allowances shows some initial impacts in augmenting the supply of allowances and reducing compliance costs, broadly balancing the prices in the fourth quarter of 2024 at CNY 97-106 per tonne with the inter-temporal flexibility to support strategic planning and smooth price volatility while preserving scarcity signals needed to create environmental effectiveness. The targets to be achieved in the future development of the market as per the implementation roadmap are enriched instruments of the transaction beyond the current spot dealing such as the introduction of forwards, futures and options which allow hedging, taking of speculative positions and elaborate portfolio management by attracting financial institutions and professional traders whose involvement enhances liquidity and better pricing discovery in terms of fundamental supply-demand forces.

Category Wise Insights

By Market Type

Why National ETS Dominates While CCER Market Shows Growth Potential?

The National Emissions Trading System is the representative of the dominant market segment amounting to about 8 billion tonnes/year CO₂, representing about 20% of total global emissions with obligatory participation by over 3,700 participants in power generation, steel, cement, and aluminum industries that generate high transaction volumes and make China the largest carbon market by volume of emissions coverage, though not as high as the EU ETS as to prices and level of market sophistication.

The cumulative volume of the national ETS trading volume by the end of August 2025 was 696 million tonnes and the transaction value was CNY 66.74 billion, which reflects the existence of substantial market engagement since the July 2021 launch though the traded volumes only reflect the overall allowance as there is still unlimited dependence on free allocation instead of secondary market acquisition and thus would represent a significant area of growth since the introduction of absolute caps would create genuine scarcity and necessitate that entities actively manage positions through trading.

In 2024 alone, trading volume reached 189 million tonnes annually, and transaction value reached a record CNY 18.11 billion which equated to 43.55% higher than the prior compliance cycle average daily volume, indicating market maturation and increasing sophistication of participants as they establish trading strategies and market positions and take advantage of inter-temporal flexibility by carrying over surplus allowances to future periods under banking provisions.

The CCER voluntary market, which has shown high growth potential after the January 2024 relaunch with new methodologies and infrastructure, will provide a cost-effective compliance option and allow more people to take part in emissions reduction than the regulated market, and where over 70 projects have been registered and nine projects have been successfully issued with reductions totalling 9.48 million tonnes shows initial traction even though supply constraints limit near-term trading activity and offset utilization rates are below their theoretical maximums.

By Sector Coverage

Why Power Sector Leads While Industrial Sectors Drive Expansion?

The power generation sector was originally described as sole coverage, where the national ETS started in July 2021 with more than 2,200 coal and gas power plants with over 26,000 tonnes of CO2 emissions each year joining the program, and the total coverage of about 5.2 billion tonnes of CO₂ marks the first step of creating the market operations, discovery of prices and regulatory framework formation before other industries can join the market and have to adapt to the new requirements of compliance and the market mechanisms.

The choice of the power sector as the first coverage was based on several strategic merits such as concentrated emissions in a few large units making administration easier, the ability to monitor and report results gained through pilot programs providing a data quality basis, the technical viability of the emissions reduction by switching fuels and improving efficiency, and little concern about the economic disturbance as opposed to export-based manufacturing sectors that face international competition pressures of carbon costing. Power sector remains predominant in terms of compliance requirements and trading operation, but with a decreasing proportion of impact due to increasing sectoral growth in 2024-2025, introducing steel, cement, and aluminum industries into the market with an influx of around 1,500 new enterprises representing an annual emission of 3 billion tonnes, and thus increasing the total emission of the ETS coverage to over 60 of the national CO₂ emissions and introducing tetrafluoromethane and hexafluoroethane as byproducts of the aluminum production to the target of regulatory liability.

Steel, cement, and aluminum industries are of critical expansion interest with huge footprints of emissions, with export also being exposed to EU CBAM foaming competitiveness urgency and with technical decarbonization demanding clean technology adoption incentivized by carbon pricing, with a planned introduction of chemicals, petrochemicals, and other heavy industries by 2027 potentially creating a comprehensive economy-wide framework.

By Transaction Type

Why Spot Trading Dominates While Derivatives Remain Undeveloped?

Spot trading is an overwhelmingly dominant form of accounting of all transactions in the market today, with same-day settlement transactions being made available where entities that need allowances to meet their compliance needs on a short-term basis or traders who have excess allocations, though limited market sophistication, regulatory limitations on derivatives trading and underdeveloped financial infrastructure preclude the development of forward curves, futures markets, and options trading that are characteristic of mature carbon markets such as the EU ETS.

The 79% volume of annual volume in the fourth quarter of 2024 trading concentration which represents a typical compliance-oriented pattern of entities waiting until they are near the deadlines of the surrender is indicative of the seasonality in price variations, liquidity, and lack of continuous price discovery between compliance periods, where trading activities tend to concentrate significantly lowering market efficiency and signaling market value. Provisions of banking that permit surplus allowances carried forward provide an inter-temporal dimension, with the fourth quarter of 2024 exhibiting the first effects of the allowance banking policy of increasing supply and price stabilization at CNY 97-106 per ton, but limits placed on the volume of allowances banked at 10,000 tons and 1.5 times net sales ensure unlimited hoarding and are keeping the market operating.

The derivatives markets and forward contracts are still in their infancy with regulatory prudence preventing financial speculation that would destroy the nascent market although the policy of August 2025 focuses on enriched instruments of transactions as the priority of development and futures as well as options may be introduced after the market is developed to allow hedging of enterprises, risk management, and complex trading strategies of interest to institutional investors and market makers with a deep understanding of the market.

Report Scope

Top Market Participants and Infrastructure Providers

• Shanghai Environment and Energy Exchange
• Beijing Green Exchange
• China Emissions Exchange (Guangzhou)
• Shenzhen Emission Rights Exchange
• Hubei Emission Exchange
• Tianjin Climate Exchange
• Chongqing Carbon Emission Trading Center
• Fujian Strait Equity Exchange
• National Center for Climate Change Strategy and International Cooperation
• China Emissions Trading Association (CETA)
• Others

Key Developments

• In August 2025: CCP Central Committee and State Council issued decisions on experiments to support green and low-carbon transformation stating a roadmap to an absolute cap transition by 2027 and the original ETS implementation.

• In March 2025: Ministry of Ecology and Environment released a work plan to incorporate the steel, cement, and aluminum sectors in ETS after consulting the public in September 2024.

The China Carbon Emissions Market is segmented as follows:

By Market Type

• National Emissions Trading System (ETS)
• China Certified Emission Reduction (CCER) Voluntary Market
• Regional Pilot Markets

By Sector Coverage

• Power Generation (Coal & Gas)
• Steel Industry
• Cement Production
• Aluminum Smelting
• Other Industries (Future Expansion)

By Transaction Type

• Spot Trading
• Forward Contracts
• Carbon Offsets (CCER)
• Future Instruments (Planned)

By Participant Type

• Compliance Entities
• Trading Institutions
• Investment Entities
• Financial Institutions

By End User

• Industrial Emitters
• Energy Companies
• Financial Institutions
• Government Entities