On 9 September 2024, the Ministry of Ecology and Environment (MEE) of China released a draft work plan to expand the sectoral coverage of the national ETS. Currently covering only the power sector, the plan proposes to extend the ETS to include the cement, steel, and aluminum industries.
The Work Plan for the inclusion of the Cement, Iron and Steel, and Aluminum Industries in the National ETS is open for public comments until 19 September 2024, and is expected to be finalized and implemented by the end of the year, with the first compliance deadline scheduled for 2025. The expansion would bring an additional 1,500 companies into the ETS, increasing the total CO2e covered by 3 billion tons, equivalent to about 5% of global emissions.
The key elements of the policy reforms are outlined below.
Scope expansion
The ETS will cover both energy-related and process CO2 emissions from the cement, steel, and aluminum sectors. For the aluminum industry, it will also include emissions of perfluorocarbons (CF4) and hexafluoroethane (C2F6). Indirect emissions will be excluded, streamlining the system in line with international standards. Earlier this year, a draft allocation plan already excluded indirect emissions in the power sector, and this proposal confirms that the national ETS will no longer cover indirect emissions. Companies in the three new sectors 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-phased 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 key parameters in each industry. 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 greenhouse gas 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.
The MEE’s decision follows nearly a decade of data collection from the industrial sector which began in 2015, including building materials, non-ferrous metals, petrochemicals, chemicals, papermaking, and aviation. A comprehensive assessment of industry readiness, considering factors such as emission reduction targets, data quality, and international carbon regulations, led to the inclusion of the cement, steel, and aluminum sectors in China’s national ETS.
