China releases 2024–2025 allowance allocation plan for industrial sectors in National ETS

On 16 November 2025, China released the “2024–2025 Allowance Cap and Allocation Plan for the Steel, Cement and Aluminum Smelter Sectors in the National Carbon Emissions Trading Market.” Following a public consultation in September, the document sets detailed allocation rules for three newly covered industrial sectors in the National Emissions Trading System (ETS), and instructs provincial authorities and the national registry and trading institutions to ensure timely and robust implementation.

The allocation plan brings approximately 3,700 covered entities and 3 billion tonnes allowances to the national ETS, equivalent to about 5% of global emissions. It provides the first comprehensive national allocation framework for these sectors, signaling a shift from preparation and data collection to full integration into the compliance cycle.

2024: Grandfathering based on verified emissions

Covered entities in the newly phased-in industrial sectors are subject to retroactive compliance obligations for their 2024 and 2025 emissions. For the 2024 compliance year, each covered entity in the steel, cement and aluminum smelter sectors will receive allowances equal to its verified emissions in 2024. This grandfathering approach aims to ensure that covered entities are fully subject to monitoring, reporting and verification (MRV) and become familiar with allowance issuance and surrendering processes.

2025: Intensity-based allocation with performance benchmarking

From 2025, the plan moves to a more differentiated, performance-based approach. The allocation method is intensity-based, designed to encourage efficiency improvements without immediately limiting overall emissions output or resulting in very large surpluses or shortages of allowances. Allowance allocation for the steel sector is calculated at the company level. In contrast, the cement and aluminum smelting sectors calculate allowances at the facility level (by clinker production line for cement and by aluminum electrolysis facility for aluminum) before aggregating them to the company level.

A central element is performance benchmarking. The Ministry of Ecology and Environment (MEE) will calculate sectoral “balance values” (benchmarks) for the three sectors. The sectoral balance value represents the carbon emissions intensity level at which the total number of allowances allocated would equal total verified emissions. Each installation's emissions intensity is compared to this balance value, and the difference is expressed as a percentage deviation. The allocation formula then adjusts an entity's allowances based on this deviation. 

For covered entities whose emissions intensity falls within 20% above or below the sectoral balance value, their allocation equals their verified emissions multiplied by one minus 15% of their deviation, as follows:

Allocation = verified emissions *(1 - the deviation*15%)

For example, an entity/facility performing 10% better than the benchmark (negative 10% deviation) would receive 101.5% of its verified emissions in allowances - meaning 1.5% more allowances than its actual emissions. Conversely, an entity/facility performing 10% worse would receive 98.5% of its verified emissions - a reduction of 1.5%.

For covered entities/facilities with deviations exceeding 20% in either direction, the adjustment is capped at 3% of verified emissions, as follows: 

Allocation = verified emissions * ±3%

This means the best-performing entities/facilities receive up to 3% more allowances than their actual emissions, while the worst performers receive no less than 97% of their verified emissions.

Banking rules: flexibility with limits

The plan defines explicit banking rules for allowances held by entities in the three sectors. The banking limit is set at 100,000 allowances plus 150% of the net volume of allowances sold by the entity in each sector. The cap on bankable volumes is intended to prevent excessive hoarding that could undermine price signals or liquidity. 

Implementation and market operation

MEE calls on provincial ecological and environmental departments and the national registry and trading institutions to implement the 2024-2025 allocation plan for three sectors.

For compliance year 2024, covered entities will receive all free allowances and must surrender their allowances by the end of December 2025. For compliance year 2025, covered entities will receive 70% of their 2024 verified emissions as a pre-allocation. After verification of their 2025 emissions, the competent authority will adjust the final allowance allocation. Covered entities must surrender their allowances by the end of December 2026.

Covered entities may use China Certified Emission Reductions (CCERs) to offset up to 5% of their verified emissions. Only CCERs issued on or after 22 January 2024 are eligible for compliance.