China Launches Carbon Trading Platform for Heavy Industry

China Launches Carbon Trading Platform for Heavy Industry

China's Ministry of Ecology and Environment expanded its national carbon emissions trading system to include steel, cement, and aluminum producers on October 16, 2025. The expansion covers approximately 2,200 additional companies responsible for an estimated 3.5 billion tons of CO2 annually.

Previously limited to the power sector since its 2021 launch, the system now regulates roughly 70% of China's total industrial emissions.

Market Mechanics

Carbon allowances opened at 98 yuan ($13.50) per ton, a 35% increase from the power-sector-only trading price earlier in the year. Analysts at Bloomberg NEF project prices could reach 150 yuan per ton by mid-2026 as allocation caps tighten.

Companies exceeding their emission allowances must purchase credits on the Shanghai Environment and Energy Exchange. Those below their caps can sell surplus allowances for profit.

Industry Response

China's steel sector, which accounts for roughly 15% of the country's total emissions, faces the most significant adjustment. Baowu Steel Group, the world's largest steelmaker, disclosed plans to invest $2.1 billion in hydrogen-based direct reduction technology to cut its carbon intensity by 30% before 2030.

"The carbon market creates a clear financial incentive for decarbonization," said Li Wei, chief sustainability officer at Baowu. "Companies that move early will gain a competitive advantage."

Compliance and Enforcement

The ministry introduced penalties of up to 500,000 yuan for non-compliance, along with mandatory emissions reporting verified by third-party auditors. Satellite monitoring and AI-powered emissions estimation will supplement self-reported data.

International observers have noted that China's carbon price remains well below the European Union's Emissions Trading System, where allowances trade above $65 per ton. However, the trajectory suggests convergence within the decade.

Global Implications

With China responsible for roughly 30% of global CO2 emissions, the expanded carbon market could reshape international trade dynamics. The EU's Carbon Border Adjustment Mechanism, set to take full effect in 2026, provides additional pressure on Chinese exporters to reduce their carbon footprint.

The next sectors slated for inclusion are petrochemicals and aviation, expected to join the system by the end of 2026.