On 17 November 2025, the Ministry of Ecology and Environment (MEE) released the “Allocation Plan for the National Carbon Emissions Trading Scheme (ETS) for the Steel, Cement, and Aluminium Smelting Industries for 2024-2025”. This marks the first inclusion of these high-emission sectors into China’s national ETS. The plan is developed in accordance with the Interim Regulations on Carbon Emissions Trading and relevant sectoral implementation documents, aiming to standardise compliance and improve market mechanisms.
Coverage and types of emissions
The plan covers major emitters in the steel, cement, and aluminium industries. It focuses on direct emissions from fossil fuel combustion and industrial process reactions. For aluminium smelting, tetrafluoromethane (CF4) and hexafluoroethane (C2F6) are also included and converted into CO2-equivalent emissions. Indirect emissions from purchased electricity and heat are not included.
Allowance allocation methods
Allowance calculations are based on verified production data, emissions, and carbon-intensity deviation formulas, supported by sector-wide benchmark values determined via the national ETS management platform.
For emissions in 2024, enterprises receive free allowances equal to their verified annual emissions. Free allocation continues in 2025, but a performance-based adjustment mechanism is introduced based on each entity’s carbon-intensity deviation from the sectoral benchmark. Enterprises with carbon-intensity levels significantly below the benchmark may receive a small surplus of allowances, while those above the benchmark may incur a limited allowance deficit. The adjustment range for both surplus and deficit is capped at ±3%.
Allowance issuance and compliance
Enterprises must surrender allowances equal to their verified annual emissions by year-end and may use a limited amount of certified voluntary emissions reductions (CCERs) for offsetting, in line with relevant rules.
For 2024, China issues allowances to key enterprises in the three sectors and conduct the first compliance cycle. For 2025, enterprises receive pre-allocation allowances equal to 70% of their previous year’s verified emissions. Final annual allowances will then be determined using a “refunds or top-ups as appropriate” approach. If the quotas preliminarily allocated to enterprises by the MEE at the beginning of the year exceed the actual determined quotas, the excess shall be deducted when determining quotas in the second half of the year. If the preliminarily allocated quotas are insufficient, the shortfall shall be supplemented.
Data quality and supervision
The MEE plans to strengthen carbon emissions data quality management through:
- Improving MRV (monitoring, reporting, and verification) technical guidelines;
- Implementing monthly data filing and adopting technologies such as blockchain to enhance data integrity;
- Strengthening on-site inspections and applying full-process, tech-enabled supervision;
- Guiding enterprises to develop annual data quality control plans and enhance their statistical and accounting capabilities.
Future expansion of China’s national ETS
The goal for the Chinese ETS is to cover most major industrial emitting sectors by 2027. Following recent national policy directions, the ETS will be gradually expanded to include the chemicals, petrochemicals, civil aviation, and pulp and paper sectors. China has been working to compile and verify historical emissions data, and technical documents, including allocation plans and MRV guidelines, are under development.
Future development of allowance management
Looking ahead, the MEE outlines several future plans:
- Gradually transitioning from intensity-based control to absolute emissions caps for eligible sectors;
- Introducing paid allocation (auctioning) alongside free allocation in a phased manner;
- Moderately tightening allowance volumes to strengthen the carbon price signal and support low-carbon industrial transformation.
Link to original policy
