China officially expands national ETS to cement, steel and aluminum sectors
This article was updated on 10 April 2025 to reflect the official confirmation of China’s ETS expansion. The original article was published on 12 September 2024.
On 20 March 2025, the Ministry of Ecology and Environment (MEE) of China released a work plan to expand the sectoral coverage of the national ETS. The plan was officially approved by the State Council in mid-March 2025, following a public consultation in September 2024.
Currently covering only the power sector, the plan extends the ETS to include the cement, steel, and aluminum industries. The first compliance deadline is scheduled for the end of 2025, covering the emissions of 2024. The expansion would bring an additional 1,500 companies into the ETS, increasing the total CO2e covered by 3 billion tonnes, equivalent to about 5% of global emissions.
The final work plan adopts most of the draft presented for public consultation, including the scope of GHGs, the phased implementation, and the new MRV requirements.
The key elements are outlined below.
Scope expansion
The ETS will cover both energy-related and process CO2 emissions from the cement, steel, and aluminum smelter sectors. For the aluminum smelter sector, it will also include emissions of perfluorocarbons (CF4) and hexafluoroethane (C2F6). Indirect emissions will be excluded, streamlining the system in line with international standards.
In November 2024, the allocation plan had already excluded indirect emissions in the power sector, and this work plan confirms that the national ETS will no longer cover indirect emissions. Companies in the three new sectors that are currently part of regional pilot ETS programs will transition to the national ETS.
Phased implementation
The ETS will continue to allocate allowances based on production output, rather than setting an absolute emissions cap. The plan sets out a two-phase implementation of the ETS in the new sectors. Phase 1 (2024-2026) aims to familiarize companies with the national ETS and enhance data quality. Phase 2 (starting 2027) aims to tighten and further improve the system. More precise details on the allowance allocation method are expected to be published in the coming months.
Improved monitoring, reporting, and verification methods
To ensure robust emissions tracking, China will improve monitoring, reporting, and verification (MRV) methods for industries. Similar to the power sector, covered entities in the cement, steel, and aluminum sectors will be required to submit monthly emissions reports with supporting evidence. The MEE will refine MRV guidelines for the industrial sector, with requirements on key parameters tailored to each sector. For parameters where actual measurement is not feasible, companies will be able to use pre-approved default values. These reports will undergo a three-tier review at the national, provincial, and municipal levels. The MEE is further exploring the use of online GHG emission monitoring (CEMS) to allow real-time tracking of emissions in key industries. This could help improve the accuracy of reported data by comparing it against online monitoring results.
Allocation plan
Compared to the draft presented for public consultation, the final work plan provides more information about the allocation plan. The MEE will publish detailed annual allocation plans based on these principles.
- For the compliance year of 2024, covered entities will receive free allowance equal to their verified emissions.
- For the compliance years of 2025 and 2026, the allocation method will be output-based and intensity-controlled. The surplus and shortage would be roughly the same within one sector.
- In Phase 2, the allocation method will be optimized against the advanced intensity level in the sector, aiming to decrease the intensity of the whole industry.
After expanding to the three new sectors, the China national ETS is expected to cover around 3,700 covered entities, with approximately 8 billion tonnes, equivalent to about 15% of global emissions.
