China to Expand Emissions Trading to Cement, Steel, and Aluminum
On September 9, 2024, China's Ministry of Ecology and Environment released a draft Work Plan to expand the national Carbon Emissions Trading Market to include the cement, steel, and electrolytic aluminum industries. This expansion is expected to cover approximately 60% of China’s total emissions.
Since its launch in July 2021, China’s national Emissions Trading System (ETS) has been limited to the power generation sector. Industrial plants are classified as “key emitting entities” under the system if they emit at least 26,000 tons of CO₂ equivalent (tCO₂e) per year, among other criteria.
Under China's ETS, CO₂ is the greenhouse gas counted for the cement, steel, and power generation industries. In the electrolytic aluminum industry, emissions of two other powerful greenhouse gases, CF₄ and C₂F₆, are included. However, the system does not cover indirect emissions from Scope 2 or Scope 3.
The new plan will be rolled out in two stages. Phase I (2024–2026) will focus on establishing a framework for carbon emissions management, with allowances allocated based on carbon intensity and production output, and no fixed cap on total emissions. Phase II (starting in 2027) will implement stricter allocation rules aligned with industry benchmarks and best practices.
The draft work plan seeks to advance industrial decarbonization by promoting low-carbon technology and lowering green premiums. It forms part of China's strategy to peak carbon emissions by 2030 and achieve carbon neutrality by 2060.
China's ETS is one of approximately 75 carbon pricing schemes worldwide, including emission trading systems and carbon taxes, collectively covering 24% of global emissions. These schemes differ in their sectoral coverage, greenhouse gases, and emissions scopes, with some acting as border measures. Such regulatory diversity poses risks of fragmenting global trade and increasing compliance costs for exporters.
Each country is responsible for improving the interoperability of climate measures, as the Paris Agreement grants them the flexibility to design their own strategies. The inclusion of new industries—steel, cement, and aluminum—may reflect China’s efforts to align its ETS with existing systems, such as the European Union Carbon Border Adjustment Mechanism (EU CBAM). This step could help Chinese producers reduce costs associated with border measures by equipping them to track, verify, report, and trade their emissions.
For more details on the official explanatory notes of the draft work plan, click here.