In a strategic effort to tackle climate change and advance towards a more sustainable economy, China has issued an official directive to expand and consolidate its National Emissions Trading System (ETS) by 2030. This pioneering system, currently focused mainly on the power sector, features a new official guideline launched in August 2025 that mandates the inclusion of all major industrial sectors by 2027, including steel, cement, and aluminum.
The National Emissions Trading Market is a mechanism that sets limits on the maximum allowed emissions for companies and industries by assigning them “carbon credits” or permits to emit a designated amount of greenhouse gases, mainly carbon dioxide (CO2). Companies that reduce their emissions below their quota can sell these credits to others exceeding their limits, creating a direct economic incentive to invest in clean technologies and energy efficiency.
This process is technically known as a “cap-and-trade” system. The main idea is to establish a global emissions cap that progressively decreases and allow the market to regulate the price of these permits so that polluting industries internalize the environmental cost of their activities.
The 2025 Chinese directive also aims to develop a robust and transparent voluntary market, where additional sectors and actors not regulated by the mandatory system can participate in emission reduction and offsetting. By 2030, China expects to have fully consolidated a strong national system that combines free and paid allocations with advanced mechanisms for emissions accounting, reporting, and verification.
Despite great advances in renewables like solar and wind, China faces a complex challenge: the simultaneous increase in coal-based electricity generation, which still represents a significant share of its energy matrix. Thus, the emissions trading system emerges as a key instrument to control and balance emissions reduction with sustained economic growth.
This regulated market, backed by legal frameworks and oversight policies, aims to ensure that national goals to peak emissions before 2030 and achieve carbon neutrality by 2060 are met with a real and stable carbon price, incentivizing green investments and generating a long-term positive environmental impact.
China is not only laying the foundations for a new energy model but also for an economy where environmental cost is reflected in business and government decisions, promoting technological innovation and sustainability with a pragmatic and gradual approach.
This momentum in Chinese climate policy marks a crucial moment in the global fight against warming, as the world’s largest emitter and a decisive actor in planetary environmental stability.
