As the world moves toward net-zero goals, China’s carbon market is evolving rapidly, shaping the global emissions landscape. In this post, we’ll explore the latest developments in China’s national Emissions Trading System (ETS), its response to the EU’s Carbon Border Adjustment Mechanism (CBAM), and what these changes mean for businesses and investors. We’ll also discuss ClearBlue’s new China carbon market intelligence product, designed to help stakeholders navigate this complex and dynamic space.
China’s Response to the EU CBAM
China’s approach to CBAM is twofold. On the one hand, the government has expressed concerns, raising objections at the World Trade Organization (WTO) and international climate summits like COP29. On the other hand, regulators are actively working to strengthen the national carbon market as a response mechanism.
The Chinese government is accelerating the expansion of its ETS to new industrial sectors, ensuring enterprises are well-prepared for global carbon pricing policies. Companies in China are increasingly recognizing that ‘going green’ is a competitive advantage, making them more receptive to carbon pricing mechanisms.
The Growth of China’s National Carbon Market
China’s national ETS, launched in 2021, now covers 40% of the country’s emissions—approximately 5.2 billion tons in 2023, with expansion plans to reach 8 billion tons. Currently, about 2,000 enterprises, mainly in the coal and gas power sectors, participate, but more industries will soon be included.
The market has seen steady growth, with the China Emissions Allowance (CEA) price averaging 98 yuan (€13) in 2024. While this remains significantly lower than the EU ETS price, China’s carbon market is evolving, with gradual improvements in regulations and enforcement mechanisms.
China ETS: A Decade in the Making
Building an effective carbon market takes time—just like the Great Wall, China’s ETS wasn’t built overnight. Over the past decade, regulators have established a structured framework, starting with the power sector and gradually expanding. Key developments include:
- Strengthening regulatory oversight under the Ministry of Ecology and Environment (MEE)
- Trading centralized at the Shanghai Environment Exchange
- A national carbon registry housed in Hubei province
These measures ensure a robust market infrastructure, critical for future expansion and international credibility.
Trends in China’s Carbon Price
Since its launch, China’s carbon price has experienced steady growth. Starting at around 50 yuan (€6) in 2021, the price remained stable for nearly two years before taking off in 2023. The upward trend was driven by intensified policy updates, stricter benchmarks, and regulatory signals that reinforced market confidence.
By early 2024, the carbon price surpassed 100 yuan (€13) following the adoption of new ETS regulations. This rally continued into the fourth quarter as enterprises prepared for compliance deadlines. ClearBlue’s market intelligence platform tracks these price movements, offering detailed analysis in our weekly reports.
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Key ETS Reforms in 2024
China’s ETS underwent major changes in 2024, signaling a paradigm shift in market design. Key reforms include:
- Stricter allowance banking rules to tackle surplus accumulation
- Transition from two-year to one-year compliance cycles for tighter regulation
- Sectoral expansion, adding industries covered by CBAM by the end of 2024
Our in-house modeling estimates a surplus of 400 million tons in the ETS as of 2023 emissions. To address this, regulators have introduced new banking limits, requiring enterprises to trade allowances before rolling over excess allocations.
China ETS Outlook: What’s Next?
Looking ahead, China’s ETS will continue expanding, with new CBAM-covered sectors set to join the system this year. The ultimate goal is full market coverage by 2030. Our modeling projects the China carbon price to average 100 yuan (€13) in 2025, with a steady rise to 200 yuan (€25) by 2030.
While this price level remains below that of the EU ETS, it provides Chinese industries with some flexibility in managing CBAM-related costs. Market balance projections suggest that by 2026, cumulative surplus will turn into a deficit, meaning either emission reductions or government intervention will be needed to stabilize the market.
China’s Voluntary Carbon Market Returns
In addition to its compliance market, China has relaunched its voluntary carbon market (CCER), which was suspended in 2017. The first batch of new CCER offsets will soon be issued under six newly approved methodologies. Trading will take place on the Beijing Green Exchange, marking a fresh chapter for China’s offset market.
Why China’s Carbon Market Matters for Businesses
China’s ETS is not just a regulatory tool—it presents opportunities for businesses and investors. Whether your organization is a compliance entity, an investor, or a company navigating CBAM-related risks, understanding China’s carbon market is crucial.
ClearBlue’s China Carbon Market Intelligence product provides the latest insights, price forecasts, and policy updates to help organizations develop effective carbon strategies. Beyond emissions trading, we offer a broader view of China’s climate policies, industrial regulations, and energy market trends.
Final Thoughts
China’s carbon market is rapidly evolving, and its impact will be felt globally. The expansion of the ETS, price increases, and regulatory shifts will shape how companies engage with carbon pricing in the coming years.
At ClearBlue, we’re committed to providing real-time analysis and strategic guidance on China’s ETS. Stay tuned for our latest reports, and reach out to explore how our insights can help your business navigate this complex landscape.