China Expands Carbon Market to Petrochemical, Chemical Sectors

China announced on August 13 that its national carbon emissions trading market will expand to include petrochemical and chemical industries, a move that will bring approximately 80 percent of the country’s carbon dioxide emissions under effective market-based control. The announcement was made by Vice Minister of Ecology and Environment Li Gao at a State Council Information Office press conference on advancing the construction of a Beautiful China during the 15th Five-Year Plan period (2026-2030).

According to Xinhua News, the expansion builds on the market’s current coverage of four industries—power generation, steel, cement, and aluminum smelting—and represents a significant broadening of the world’s largest carbon trading system by emissions coverage.

Market Milestones and Performance

The expansion announcement comes as China’s carbon market marks significant operational milestones. Minister of Ecology and Environment Huang Runqiu reported at the same press conference that cumulative trading volume exceeded 930 million tonnes by the end of July 2026, as 21st Century Business Herald detailed. Over five years of operation since its July 2021 launch, the market has accumulated approximately 61.9 billion yuan (about $8.7 billion) in cumulative trading value, with more than 3,000 entities now included in quota management.

Huang emphasized that the carbon market has helped industries cut emissions at lower costs while substantially contributing to the green and low-carbon transition. The English-language Xinhua report noted that the market, which began trading in 2021, has become a cornerstone of China’s climate policy toolkit.

Expanding Coverage to 80 Percent of Emissions

Li Gao outlined the expansion’s scope during the press conference, stating that the national carbon emissions trading market will extend beyond the current four industries to include petrochemical, chemical, and other high-emission sectors. This expansion will bring approximately 80 percent of China’s carbon dioxide emissions under effective control, up from the current coverage of roughly 60 percent.

“The national voluntary emission reduction trading market will provide incentives for carbon reduction and sink enhancement projects in more sectors,” Li said, as reported by China News. “By better leveraging the guiding role of carbon prices for green low-carbon technology and industrial development, we will let the whole society truly feel that ‘emitting carbon has a cost, reducing carbon has benefits.’”

The announcement is part of the broader “five key priorities” for climate change work during the 15th Five-Year Plan period, which Li described as “the decisive period for achieving carbon peak.” The priorities include advancing green low-carbon transition in key sectors, accelerating national carbon market construction, improving carbon emission statistical accounting systems, comprehensively enhancing climate resilience, and promoting international cooperation on climate change.

Policy Framework and Implementation Roadmap

The expansion is anchored in the “Beautiful China Construction 15th Five-Year Plan,” issued by the State Council in June 2026. The plan calls for orderly expansion of the national carbon market’s coverage, increasing market participants, and reducing carbon emissions per unit of product covered by the market by approximately 3 percent by 2030.

According to the Ministry of Ecology and Environment’s 2026 work notice, petrochemical, chemical, building materials (flat glass), non-ferrous metals (copper smelting), paper, and civil aviation industries have already been brought into the annual greenhouse gas emission reporting management scope. Companies in these industries with annual emissions of 26,000 tonnes of CO2 equivalent or more are required to report their 2025 greenhouse gas emissions.

The policy roadmap aims for the national carbon market to basically cover major emission industries in the industrial sector by 2027, as outlined in the “Opinions on Promoting Green and Low-Carbon Transition and Strengthening National Carbon Market Construction” issued by the CPC Central Committee and State Council.

Industry Readiness and Challenges

The petrochemical and chemical industries present unique challenges for carbon market integration. As 21st Century Business Herald’s five-year anniversary analysis noted, industry experts suggest that petrochemical and paper industries may be prioritized for earlier inclusion due to higher product standardization, while the chemical sector faces greater hurdles due to diverse product types and complex manufacturing processes that make baseline allocation difficult.

Experts quoted by National Business Daily noted that the further clarification of the carbon market expansion roadmap sends a clear policy signal that China is steadily and orderly advancing its carbon peak and carbon neutrality goals. Relying on market-based mechanisms to optimize emission reduction resource allocation can effectively reduce the overall cost of emissions reduction for society while injecting sustained momentum into related industries such as low-carbon technology innovation, carbon accounting services, and green finance.

Broader Climate Agenda

The carbon market expansion is one component of a comprehensive climate strategy for the 15th Five-Year Plan period. Li Gao highlighted that China will implement dual control over total carbon emissions and intensity, promote green low-carbon development in energy, industry, transportation, and urban-rural construction, and strengthen control of non-CO2 greenhouse gases such as methane, industrial nitrous oxide, and fluorinated gases.

The government is also working to improve carbon emission statistical accounting systems, develop carbon footprint data systems and standards, and establish carbon labeling certification mechanisms. As reported by China Energy News, these efforts aim to address carbon-related trade barriers and promote international alignment of carbon standards, which is particularly relevant given mechanisms such as the EU’s Carbon Border Adjustment Mechanism.

Environmental Progress in 2026

At the same press conference, Huang Runqiu reported on China’s environmental quality improvements during the first seven months of 2026. The average PM2.5 concentration decreased by 1.8 micrograms per cubic meter (a 6.2 percent year-on-year decline), the ratio of good air quality days increased by 3.9 percentage points, and surface water quality at Class I-III standards reached 86.5 percent, according to the full Xinhua press conference coverage.

Huang outlined a “four more emphasis” approach for the 15th Five-Year Plan period: more emphasis on environmental protection for the people, more emphasis on source control and pollution-carbon reduction synergy, more emphasis on reform and innovation in environmental governance, and more emphasis on universal participation in building a Beautiful China.

What to Watch For

As China’s carbon market expands to cover approximately 80 percent of national CO2 emissions, several key developments bear watching. The implementation timeline for petrochemical and chemical industry inclusion will be critical, particularly how quota allocation methodologies are designed for these complex sectors. The transition from “strength control” to potential “total amount and intensity dual control” will need careful management. Carbon price trends and their impact on industrial competitiveness will require monitoring.

Internationally, the expansion solidifies China’s position as having the world’s largest carbon market by emissions coverage, making it an increasingly significant player in global climate governance. The development of carbon footprint data systems aligned with international norms will be crucial for addressing carbon-related trade barriers and shaping the evolving landscape of global carbon pricing.

Industry experts cited by Economic Observer and China Economic Net agree that the market expansion signals China’s commitment to using market-based mechanisms as a core tool in its climate strategy. As the 15th Five-Year Plan period unfolds, the effectiveness of this expanded carbon market will be a key indicator of China’s progress toward its carbon peak and carbon neutrality goals.