China expands its carbon market to heavy industries, leading the way globally.

China recently announced a major expansion of its carbon market, which is now the largest globally in terms of covering emissions. This expansion includes heavy industries such as steel and cement, which were not part of the market when it was first launched in 2021. With the addition of these industries, the market now regulates over 60 percent of the nation’s CO2 emissions, marking a significant step towards reducing carbon pollution.

The expansion of China’s national carbon market, known as the Emissions Trading System (ETS), is a crucial development in the country’s efforts to combat climate change. According to the Progress Report of China’s National Carbon Market (2025) published by the Ministry of Ecology and Environment (MEE), over 1,300 new industrial emitters have been added to the system. This has led to a total coverage increase of roughly 3 billion tonnes of CO2. In the future, civil aviation is expected to be included in the market as well.

The report highlights the increasing activity in the market, with record trading volumes of 189 million tonnes of allowances in 2024. This resulted in transaction values of 18.1 billion yuan. By August 2025, the cumulative trading volume since the market’s inception had surpassed 696 million tonnes, valued at nearly 48 billion yuan. The rise in trading activity is accompanied by an increase in carbon prices, which reached over 100 yuan per tonne in April 2024.

One of the key factors contributing to the market’s success is a banking policy that requires companies to sell part of their surplus allowances before carrying them forward. This policy aims to prevent hoarding and stabilize prices. As a result, enterprises are more willing to engage in trading, leading to a compliance rate of 99.98 percent in 2024. The market is said to be functioning based on supply-demand dynamics, ensuring its sustainability and effectiveness.

China has implemented new regulations to support the carbon market, including the Interim Regulations for the Management of Carbon Emission Trading, which came into effect in May 2024. These rules establish penalties for various violations, such as falsifying data or market manipulation. Beijing has also issued the Opinions on Advancing Green and Low-Carbon Transition in August 2025, outlining a roadmap for further development of the ETS. By 2027, the system aims to cover all major industrial sectors, leading to a unified and transparent market by 2030.

In addition to the compliance market, China has launched the National Voluntary Greenhouse Gas Emission Reduction Market, which has gained momentum since its inception in January 2024. Over 100 projects have been disclosed, including initiatives in offshore wind, solar thermal, and afforestation. The market has seen trading volumes of 2.7 million tonnes and prices exceeding 100 yuan per tonne. Project developers are benefiting from this market, creating new revenue streams and contributing to environmental efforts.

Overall, China’s carbon market expansion is a significant step in the country’s transition towards a low-carbon economy. With a focus on stricter compliance, increased transparency, and global cooperation, China is setting a new standard for carbon markets worldwide. By aligning its market with international systems and pushing for clearer rules under the Paris Agreement, China is demonstrating its commitment to combatting climate change on a global scale. Through these efforts, China is not only positioning itself as a leader in carbon reduction but also as a key player in the fight against climate change.