China's Carbon Market Adds Steel, Cement and Aluminium: 1,500 Firms and About 3 Billion Tonnes Join the Power Sector
On 26 March 2025 China's Ministry of Ecology and Environment published its work plan for including the steel, cement and aluminium smelting sectors in the national carbon emissions trading market. It is the first expansion of the national market since it began trading in July 2021, when it covered only power generation. According to the ministry, the three sectors emit about 3 billion tonnes of carbon dioxide equivalent a year, more than 20% of China's total carbon dioxide emissions.
For steel and cement, the market will cover direct carbon dioxide emissions from fossil fuel combustion and industrial processes. The first compliance cycle for the new sectors covers 2024 emissions, with allowances to be surrendered by the end of 2025. The intensity-based design is the most important difference between China's market and the EU emissions trading system. China has said it intends to move toward absolute caps for some sectors over time, and the 2027 start of the work plan's second stage is the point at which officials have indicated the design will be refined.
The ministry said that carbon emissions intensity in power generation has fallen by 8.78% since the market began in 2021. Trading activity in the national market has been concentrated around compliance deadlines, with relatively low liquidity at other times. China produces roughly half of the world's steel and more than half of its primary aluminium. Under an intensity-based system, the most efficient plants in each sector will have surplus allowances to sell, and the least efficient will need to buy.
Chinese officials have framed the expansion primarily in terms of domestic climate goals, including the pledge to peak carbon dioxide emissions before 2030 and reach carbon neutrality before 2060. Monitoring, reporting and verification have been a challenge in the national market. The quality of data from the new sectors will matter for the credibility of the market. For coal markets, the direct effect is modest in the near term.