China's national ETS explained

China’s national emissions trading system is a State Council regulation run on an annual cycle by provincial environmental departments. This explainer covers the instrument, whom it binds and how the cycle runs.

What it is

The legal base is the Interim Regulations on the Administration of Carbon Emissions Trading (State Council Order No. 775), adopted on 5 January 2024 and in force since 1 May 2024.¹ They define greenhouse gases as including carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, sulphur hexafluoride and nitrogen trifluoride, set one unit of allowance at 1 tonne of carbon dioxide equivalent, and define surrender as handing over, within the prescribed period, allowances equal to the verified actual emissions of the previous year.¹

Covered gases and sectors are proposed by the State Council ecology and environment department with the development and reform and other departments and implemented after State Council approval; allowances are allocated free of charge, with a gradual move to a mix of free and paid allocation.¹ Coverage, the criteria for key emitting units and the annual allowance plan all go out for comment before they are set, and provinces issue allowances strictly in line with that plan.¹

Two national institutions run the market — a registration institution for registration and settlement, and a trading institution for centralised trading — jointly supervised by the ecology and environment department, the market regulator, the People’s Bank of China and the banking regulator.¹ Trading is by agreement transfer, one-way bidding or other spot methods, and manipulating the market by fraud, collusion or false information is prohibited.¹

Who it binds

The obligation falls on key emitting units named on annual provincial lists. Steel, cement and aluminium smelting joined power under the Work Plan issued with MEE notice 环气候〔2025〕23号 of 20 March 2025, which covers CO2 for steel and cement and CO2, CF4 and C2F6 for aluminium smelting, and estimated roughly 1,500 more units and about 3 billion tonnes CO2e of coverage.² Key emitting units and other entities meeting national rules may trade; the staff of the supervising departments, the two national institutions and the technical service institutions may not.¹

Technical service institutions are bound in their own right — for testing, for preparing annual emission reports and for technical review — and one institution may not do both report preparation and review within the same province.¹ A second group reports without holding allowances: petrochemical, chemical, flat glass, copper smelting, pulp and paper and civil aviation enterprises, and steel and cement enterprises not yet on the lists, fall within the scope of annual emission reporting under the January notice, with no allocation or surrender step.³

Regional markets are closed to new entrants: none may be newly established, key emitting units no longer trade regionally for the same gases and sectors, and pre-existing regional markets are to improve their systems by reference to the Regulations.¹

Dates

The Work Plan sets a launch phase over compliance years 2024 to 2026 — 2024 being the first controlled year for the three new sectors, with the first surrender before the end of 2025 — and a deepening phase from compliance year 2027 with a mechanism for gradually and moderately tightening sector allowance totals.²

MEE notice 环办气候函〔2026〕32号 of 27 January 2026 sets the working calendar. For the 2025 compliance year: reports by 31 March 2026; verification of power-sector reports by 30 June 2026 and of steel, cement and aluminium reports by 31 July 2026; allocation by 30 September 2026; surrender in full by 31 December 2026.³ Around that spine sit pre-allocation by 10 April 2026 for steel, cement and aluminium and 30 June 2026 for power, determination of the allowance amounts by 20 September 2026, and publication of the provinces’ assessment of the verification service institutions by 30 November 2026.³ The 2027 lists are published by 31 October 2026 on the national platform at www.cets.org.cn and provincial websites, and 2027 data quality control plans set by 31 December 2026, with monthly recording of accounting data within 40 calendar days after each month.³

The allowance totals were still open at the retrieval date: on 22 July 2026 MEE opened consultation on a draft allocation plan for power for 2025 and 2026 and for steel, cement and aluminium smelting for 2026, with comments due by 5 August 2026.⁴

Thresholds

For the three sectors added by the Work Plan, a unit is a key emitting unit at annual greenhouse-gas emissions of 26,000 tonnes CO2e or more.² For the 2027 lists across all four sectors, the January notice measures the same figure as annual direct emissions.³

The reporting-only scope uses two bases at the same number, and the distinction matters. For petrochemicals, chemicals, flat glass, copper smelting, pulp and paper and civil aviation the test is annual greenhouse-gas emissions of 26,000 tonnes CO2e — about 10,000 tonnes of standard coal equivalent — with checks by 31 December 2026. For steel and cement enterprises not yet on the lists it is annual direct emissions of 26,000 tonnes CO2e, with checks by 31 July 2026; both file by 31 March 2026.³ Allowances and reported emissions are adjusted where a unit consumes non-fossil electricity.¹

Verification standard

Verification is a public function, not a private audit. A key emitting unit adopts and executes a data quality control plan, uses verified or calibrated instruments, submits the previous year’s emission report, publishes its emissions, facilities and accounting method, keeps original records for at least 5 years, and is responsible for the truthfulness, completeness and accuracy of its data.¹ The provincial department verifies that report, gives the unit the result within 7 working days of completion and publishes it; it may commission a technical service institution for the technical review through government purchase of services.¹ The Work Plan adds monthly recording of key parameters through the national platform under national, provincial and municipal review, and makes the verification result the basis for allocation and surrender.²

Enforcement runs through the platform and on-site inspection by no fewer than 2 inspectors showing credentials.¹ Reporting, publication and record-keeping failures draw fines of 50,000 to 500,000 yuan; falsified accounting or reports draw 500,000 to 2,000,000 yuan (or 5 to 10 times illegal gains) and a 50 to 100 percent cut in the next year’s allowances on refusal to correct; failure to surrender draws 5 to 10 times the average market price in the month before the deadline plus an equal deduction.¹ Technical service institutions face their own scale, up to 1,000,000 yuan for a defective or falsified report or review opinion, with bans of 5 years or for life on those responsible; market manipulation carries 1 to 10 times illegal gains or up to 5,000,000 yuan; and penalties are entered in national credit information systems and published.¹

What an organisation on ESGOS can do

An organisation operating in China can find its listing in the directory and claim it from its profile page, or get listed and attach the evidence this regime produces: the published annual emission report, the provincial verification result and the data quality control plan behind them; a reporting-only enterprise can attach the submitted report alone. The verifiers directory lists accredited verification bodies from national accreditation registers, and the exposure check shows which regimes reach a product and market.

Footnotes

1. 碳排放权交易管理暂行条例 (Interim Regulations on the Administration of Carbon Emissions Trading), State Council Order No. 775, State Council of the People’s Republic of China. ↩ ↩² ↩³ ↩⁴ ↩⁵ ↩⁶ ↩⁷ ↩⁸ ↩⁹ ↩¹⁰ ↩¹¹ ↩¹² ↩¹³ ↩¹⁴ ↩¹⁵

2. Notice issuing the Work Plan for covering the steel, cement and aluminium smelting sectors in the national carbon emissions trading market, Ministry of Ecology and Environment. ↩ ↩² ↩³ ↩⁴

3. Notice on the national carbon emissions trading market work for the current year, Ministry of Ecology and Environment, General Office. ↩ ↩² ↩³ ↩⁴ ↩⁵ ↩⁶

4. Consultation on the draft allowance total and allocation plan for the power, steel, cement and aluminium smelting sectors, Ministry of Ecology and Environment, General Office. ↩