China’s Carbon Market Expands to Cover 80% of Emissions

China’s national carbon emissions trading market has now traded 961 million tonnes of carbon dioxide equivalent since its launch in July 2021, with cumulative turnover reaching RMB 65.7 billion (about $9.71 billion) by the end of August 2026, according to a Xinhua observation report published October 7.

The report, pegged to the China Carbon Market Conference held in Wuhan in mid-September, details the first five years of the world’s largest emissions trading scheme (ETS) and lays out a roadmap to expand it to petrochemical and chemical industries — putting roughly 80 percent of the nation’s CO2 emissions under effective control.

From Power Generation to Heavy Industry

When launched, the national market covered only power generation, initially including more than 2,000 firms with emissions exceeding 4 billion tonnes. It has since expanded to steel, cement and aluminium smelting, with 3,680 key emitting enterprises now enrolled across the four sectors. Together these industries account for more than 65 percent of national CO2 emissions, per CarbonMeld, an independent carbon market intelligence outlet.

The expansion proved its weight in 2025, the first full year the scheme covered steel, cement and aluminium alongside power. Annual trading volume hit a record 235 million tonnes, up 24.36 percent year on year, across 243 trading days, with transaction value reaching RMB 14.63 billion.

Vice Minister of Ecology and Environment Li Gao announced in August 2026 that the market would next expand to petrochemical, chemical and other high-emission industries, achieving effective control of about 80 percent of the nation’s CO2 emissions. The voluntary emissions reduction market, he added, would extend incentives for carbon-reduction and sink-enhancement projects across more sectors — letting society “truly feel that emitting carbon has a cost, reducing carbon has a benefit.”

Aluminium’s entry is the most internationally significant. Smelters now carry a compliance obligation that creates a measurable carbon cost line — one that will increasingly surface in contract talks with overseas buyers, particularly those preparing for the European Union’s carbon border adjustment mechanism, which already lists aluminium among its covered goods.

A Two-Market System

The national ETS operates through a “Wuhan registration — Shanghai trading” dual-city model: the Shanghai Environment and Energy Exchange handles trading, while the registration and settlement system in Wuhan manages registration, compliance clearing and settlement.

The market has delivered measurable results. According to the National Carbon Market Development Report 2026, over five years the power generation sector cut social abatement costs by roughly RMB 56.8 billion and generated RMB 35.69 billion in reduction revenue for 1,173 technologically advanced firms. Chinese carbon allowances have stabilised around RMB 95 (about $14.16).

Alongside the mandatory market, the National Greenhouse Gas Voluntary Emission Reduction Trading Market launched in January 2024. By end-August 2026, 41 projects had registered, with cumulative volume of 21.7 million tonnes and turnover of RMB 1.737 billion. In March 2026, China registered its first mangrove restoration project under the scheme — a milestone for valuing marine carbon sinks.

The effects reach the enterprise level. At Wuhan Iron and Steel, a chief technology officer explained that the market sets an annual carbon allowance for each firm, allowing those that cut emissions to sell surplus permits while those exceeding their allowance buy to fill the gap. Hubei Huadian Xiangyang Power switched to biomass fuel and earned more than RMB 25 million selling surplus allowances, while the biochar from combustion is processed into carbon-based compound fertilizer. In the far north, the Mohe Forestry Bureau completed China’s first certified voluntary afforestation carbon sink project in August 2025, projected at 240,000 tonnes of CO2 equivalent and valued over RMB 24 million.

Global Context and Forward Look

The momentum is part of a wider trend. At the Wuhan conference, Environmental Defense Fund executive vice president Angela Churie Kallhauge said 40 emissions trading systems now operate worldwide, covering 26 percent of global greenhouse gas emissions — up from 23 percent in 2025. Counting carbon taxes, 87 carbon pricing instruments are in force, with seven more ETS under construction. By 2030, Brazil, Chile, Colombia, Malaysia, Thailand and Turkey are expected to add further schemes.

The Hubei provincial government reported that representatives from 27 countries, regions and international organizations attended the conference.

Beijing has set clear targets. By 2027, the national ETS is to basically cover all major emitting industries, with the voluntary market achieving full coverage of key sectors. By 2030, a market based on total allowance control — combining free and paid allocation — is to be established, forming a carbon pricing mechanism with clear reduction effects and reasonable price levels.

The National Development and Reform Commission reported that the 14th Five-Year Plan targets for reducing both energy intensity and carbon intensity were met, laying the foundation for “dual control” of carbon emissions in the 2026–2030 period. China aims to peak emissions before 2030 and reach carbon neutrality before 2060.

As the CarbonMeld analysis noted, Beijing has also signalled allowing financial institutions into the market — a potential design shift that would deepen liquidity beyond compliance-driven trading and support price discovery. Combined with record volumes, a wider sector base and stable prices, the moves describe a market being prepared for a more financialised phase, similar to the path the EU ETS took in its second decade. For traders, buyers and investors watching compliance demand grow outside Europe, China’s carbon market is increasingly one to watch — and increasingly one to price.