China issues landmark guidelines to transition to absolute cap and expand scope in National ETS
On 25 August 2025, China’s highest authorities – the General Office of the CPC Central Committee and the General Office of the State Council – issued the “Opinions on Advancing Green and Low-Carbon Transformation and Strengthening the Construction of the National ETS.” This policy marks a decisive shift in China’s climate strategy, setting out a roadmap for both the transition from intensity-based to absolute caps and the expansion of the National ETS’s coverage. The guidelines aim to strengthen the market’s effectiveness, dynamism, and international influence as part of China’s broader efforts to peak emissions before 2030 and achieve carbon neutrality before 2060.
Key targets and timeline
The Opinions establish clear medium- and long-term objectives. By 2027, the National ETS is expected to cover all major industrial emitters. The voluntary greenhouse gas emission reduction trading market (CCER) will also achieve comprehensive coverage of key areas. By 2030, China aims to have a cap-and-trade system with a mix of allocation and auctioning, and a voluntary market that is credible, transparent, widely participatory, and aligned with international standards.
Transition from intensity-based to absolute caps
A fundamental shift outlined in the Opinions is the move from intensity-based controls (emissions per unit of output) to absolute emissions caps for covered sectors. Starting as early as 2027, sectors with relatively stable emissions profiles will be subject to absolute cap controls. At that point, increases in production by covered entities will no longer automatically result in higher allowance allocations.
Expansion of scope
The Opinions call for the orderly inclusion of additional sectors and greenhouse gases in the National ETS, guided by factors such as sectoral emissions, data quality, and abatement potential. The CCER market will also support voluntary emission reduction methodologies with social and ecological benefits. While the Opinions do not specify which sectors will be prioritized, civil aviation, copper smelting, flat glass, petrochemicals, chemicals, and paper manufacturing have already undergone a decade of greenhouse gas data monitoring, reporting, and verification (MRV). These sectors are expected to be included in the National ETS following earlier inclusion of the power, steel, cement, and aluminum sectors.
Introduction of auctioning
According to the Opinions, the allocation mechanism will evolve from primarily free allocation to a hybrid model incorporating auctioning of allowances, with the aim of improving market efficiency and price discovery. A market reserve and adjustment mechanism will be established to stabilize carbon prices and balance supply and demand, drawing on successful experiences from regional pilots.
Strengthening market infrastructure and supervision
To further strengthen the National ETS, the Opinions require diversifying trading products, expanding the range of market participants – including financial institutions and qualified individuals - and enhancing market supervision. Improvements in carbon accounting, reporting, and information disclosure are also emphasized, alongside the development of a robust legal and policy framework.
International Alignment
The Opinions stress the importance of aligning the National ETS with international standards. Efforts are also underway to connect China’s voluntary market with global carbon credit systems, enhance cross-border trading, and support international climate cooperation.
Future Outlook
By setting a clear timeline for the transition to absolute emissions caps and a significant expansion scope, the Opinions mark a transformative step for the world’s largest ETS. Importantly, the Opinions provide clear strategic direction for the Ministry of Ecology and Environment (MEE) – the authority responsible for the National ETS – to further refine and develop the system. In accordance with the requirements set out in the Opinions, the MEE, in collaboration with other relevant ministries and agencies, will develop and implement detailed supporting policies and measures to carry out the guidelines.
