At the end of August 2025 the General Offices of the Communist Party of China Central Committee and the State Council published an opinion on promoting the green and low-carbon transition and strengthening the construction of the national carbon market. The document sets out a roadmap for China's emissions trading system through 2030, and it answers one of the main questions hanging over the market since its launch in 2021: when China will move from intensity-based allocation to absolute caps.
According to the opinion, by 2027 the national compliance carbon market should cover the main industrial sectors, and absolute allowance caps will first be applied in sectors where emissions are relatively stable. By 2030, China aims to have a cap-and-trade system based on total allowance control, combining free and paid allocation, along with a voluntary carbon market that is mature and aligned with international practice.
The National Energy Administration summarised the plan as a "double expansion": more sectors and more types of trading participants.
Where the market stands now
China's national carbon market began trading in July 2021 with the power sector only, covering more than 2,200 power companies and about 5 billion tonnes of carbon dioxide a year. In March 2025 the Ministry of Ecology and Environment published a work plan adding steel, cement and aluminium smelting. The ministry's 2025 progress report says that after the first expansion more than 1,300 new key emitting entities were added and covered emissions rose by about 3 billion tonnes, bringing coverage to more than 60% of China's carbon dioxide emissions.
So far, allowances have been allocated free and based on intensity benchmarks. Each covered company receives allowances in proportion to its output, multiplied by a benchmark emissions rate. Total allocation therefore rises with output, and the market rewards efficiency per unit of production rather than reductions in total emissions.
What absolute caps would change
Under an absolute cap, the government sets a fixed total number of allowances for a sector or for the whole market, and that total declines over time. Companies must reduce emissions or buy allowances from others, regardless of how much they produce. The carbon price is then determined by how hard it is to keep total emissions within the cap.
The opinion indicates that caps will be introduced first where emissions are relatively stable. That suggests sectors with mature output, such as cement, where Chinese production has been falling with the slowdown in construction, or parts of the power sector, rather than sectors still growing quickly. The steel, cement and aluminium sectors remain on intensity-based allocation through 2026 under the March work plan, with tightening of total allowances to be studied from 2027.
Paid allocation
The opinion also refers to combining free and paid allocation by 2030. Paid allocation typically means auctioning, as in the EU system, where most allowances for the power sector are auctioned. Auctioning raises revenue for the government and strengthens the price signal, because companies pay for every tonne they emit rather than only for emissions above a free benchmark.
Introducing auctions in China would be a significant change for power generators, most of which are state-owned and operate under regulated tariffs. How auction costs are passed through to electricity prices will depend on the pace of China's broader power market reforms, which are gradually moving more electricity to market-based pricing.
The link to China's climate targets
China's stated goals are to peak carbon dioxide emissions before 2030 and achieve carbon neutrality before 2060. The roadmap places the move to absolute caps around the period when emissions are expected to peak. A cap-and-trade system by 2030 would give China a mechanism to manage a declining emissions trajectory after the peak.
On 24 September, President Xi Jinping announced China's 2035 nationally determined contribution, which commits to cutting economy-wide net greenhouse gas emissions by 7% to 10% from peak levels by 2035. It is the first Chinese target expressed as an absolute reduction, and the carbon market is expected to be one of the main tools for delivering it.
Implications for coal and power
For coal markets, the near-term effect is limited. Absolute caps will apply first to stable sectors, and coal remains the largest source of electricity in China. Over time, a declining cap on power sector emissions, combined with continued growth in wind, solar, hydro and nuclear, would reduce coal burn in power generation.
China's power sector is changing quickly. Wind and solar installations have grown by record amounts in recent years, and in some months of 2024 and 2025 power sector emissions fell year on year as clean generation met most new demand. An absolute cap would lock in such declines and give coal plant operators a clearer signal about future running hours.
Implications for trade
The roadmap is also relevant to trade partners. The EU's carbon border adjustment mechanism enters its definitive phase in January 2026 and allows a deduction for carbon prices effectively paid in the country of origin. A Chinese carbon market with absolute caps and paid allocation would produce a clearer effective carbon price on steel and aluminium, which could reduce CBAM payments on Chinese exports to the EU. The UK will introduce its own border adjustment in 2027 with a similar deduction mechanism.
The voluntary market
The opinion also addresses China's voluntary market, the China Certified Emission Reduction scheme, which was relaunched in January 2024 after a pause of several years. CCER credits can be used for a limited share of compliance obligations in the national market. Developing a mature voluntary market aligned with international practice could, in principle, link Chinese credits with international systems under Article 6 of the Paris Agreement.
Data quality as a precondition
An absolute cap is only as credible as the emissions data behind it. China's market has faced data integrity problems, including cases in which consultancies falsified emissions reports for power companies, which the environment ministry publicised in 2022. The ministry has since tightened monitoring rules, including monthly deposit of key parameters for covered companies. The three new industrial sectors have more complex process emissions than power plants, which makes accurate measurement harder. Moving to absolute caps by 2027 in some sectors will depend on several years of reliable verified data to set a baseline.
What to watch
The key next steps are the inclusion of further sectors, such as chemicals, petrochemicals, paper and aviation, which have been named in earlier planning documents; the selection of the first sectors to move to absolute caps; and the design of auctioning. The 15th Five-Year Plan, due in 2026, will show how the carbon market is tied to the new 2035 target.