China Keeps Free, Intensity-Based Allowances for Steel, Cement and Aluminium as Its Carbon Market Enters a Second Industrial Year
China's Ministry of Ecology and Environment has published its Progress Report of China's National Carbon Market (2026), setting out the state of the national emissions trading scheme after its expansion to steel, cement and aluminium smelting. The report follows the ministry's allocation plan, published in July, covering the power sector for 2025 and 2026 and the three industrial sectors for 2026. Under the plan, steel, cement and aluminium producers continue to receive free allowances based on emissions intensity, using the same allocation method as in 2025, according to the ministry documents and market reports.
The national carbon price stood at about CNY94.40 per tonne on 4 September 2026, according to a report by OPIS. China's national ETS launched in 2021 covering coal and gas-fired power plants, which account for a large share of the country's carbon dioxide emissions. Because allocation is tied to output, total emissions under the scheme can rise if production rises, even as intensity falls. The 3% cap on surpluses and shortfalls for 2026 introduces a modest financial incentive.
China's steel and aluminium exports to the EU are covered by the EU's carbon border adjustment mechanism, whose definitive period began in January 2026. China's power sector emissions have been affected by rapid growth in wind and solar capacity, which has outpaced demand growth in some periods. China submitted a new nationally determined contribution in September 2025, pledging to cut net greenhouse gas emissions by 7% to 10% from peak levels by 2035. Trading in China's carbon market has historically been concentrated around compliance deadlines, with low liquidity at other times.
Before the national market, China ran regional pilot carbon markets in cities and provinces including Beijing, Shanghai, Guangdong, Shenzhen and Hubei. Key items include the 2026 compliance deadline for industrial sectors, any moves toward absolute caps or auctioning, the addition of further sectors such as chemicals, petrochemicals and aviation, and the effect of carbon prices on coal plant economics.