On 25 August 2025, China has issued new policy guidance entitled “Opinions on Advancing Green and Low-Carbon Transition and Strengthening the National Carbon Market”. The document outlines how the country intends to expand the scope and improve the governance of its mandatory national Emissions Trading System (ETS) and voluntary carbon market (VCM), with the goal of building a more effective and internationally credible carbon pricing framework. A central feature is the gradual shift from intensity-based controls to absolute emissions caps in major industrial sectors.
ETS upgrade: from intensity to absolute caps
The guidance charts a gradual shift from regulating emission intensity (emissions per unit of output) to absolute emission caps (total allowable emissions), beginning with industries that have relatively stable emissions.
The roadmap sets out phased ETS development targets for 2027 and 2030. By 2027, the focus is on market expansion, with the ETS covering all major high-emission industries such as power, steel, and cement that drive industrial sector emissions. By 2030, the goal is to establish a mature mechanism operating on absolute emission caps, with allowances allocated through a mix of free and paid distribution.
Key measures include:
- Gradually increasing the share of paid allowance allocation to strengthen market incentives.
- Introducing an allowance reserve system to stabilise market operations.
- Allowing limited use of certified voluntary carbon credits as offsets.
- Provincial pilot markets will continue to coordinate with the national ETS, with no new pilots planned.
Scaling up the VCM
In parallel, the VCM shall be scaled up and professionalised. The guidance defines a two-stage process from expansion to maturity: by 2027, the VCM is to be rolled out across key fields (not yet specified in the policy); and by 2030, it aims to achieve transparency, consistent methodology, wide adoption, and international compatibility.
The VCM shall be supported by a more robust methodology system, with priority given to areas that bring both climate and wider social or ecological benefits. Project governance is aimed to be strengthened across the full cycle, from development to verification, and rules for the use of certified credits will be clarified.
Notably, the guidance emphasises improving international recognition of Chinese VCM credits, a move aimed to support companies with international compliance obligations and product neutrality claims.
Governance, finance, and oversight
Green finance tools, e.g. those aimed at supporting companies with their carbon pledges, are planned to support market growth, while strict measures will be introduced to prevent market manipulation and reduce systemic risks. Key trust-building steps include:
- Strengthened transparency: Emitters, registries, exchanges, and financial institutions must disclose emissions, trading, and compliance data.
- Advanced MRV systems: Digital registries and automated monitoring will be rolled out, with stricter accreditation for verification bodies.
These measures aim to ensure data integrity and market fairness.
Relevance
This policy is a milestone in China’s effort to build a comprehensive carbon pricing architecture. By introducing an absolute cap and expanding sectoral coverage of the ETS and striving to build a credible VCM, China aims to align subnational, national, and international carbon trading mechanisms – providing incentives for investment in low-carbon technologies.
General Office of the Central Committee of the Communist Party of China and the General Office of the State Council: Opinions on Promoting Green and Low-carbon Transformation and Strengthening the Construction of the National Carbon Market
