China plans to place strict limits on carbon emissions in certain industries starting in 2027, marking the first time the country will use absolute caps rather than looser intensity-based rules. The move, announced by China’s State Council on Monday, signals a major shift in how the world’s largest emitter regulates greenhouse gases.
For now, China’s carbon market—the world’s largest emissions trading system—relies on benchmarks tied to carbon intensity. Companies are given a set number of free allowances and must purchase extra if they pollute beyond their quota. Those that emit less can sell unused credits.
But under the new plan, industries with relatively steady pollution levels will face fixed emissions ceilings beginning in 2027. By 2030, Beijing says the system will cover most of the country’s major polluters with a mix of free and paid allowances.
Gradual industry enrollment
Analysts also expect sectors such as chemicals, petrochemicals, papermaking and domestic aviation to be among the first added. The market already expanded last year to include steel, cement and aluminum—industries responsible for around 60% of China’s greenhouse gases.
Industry groups and major companies in steel, cement, and aluminum have already been informed that strict emissions caps will begin taking effect in 2027. According to Yan Qin, Principal Analyst at ClearBlue Markets “..it is no doubt that the regulator already expects the emissions in these sectors to have peaked and plateaued and even being on declining paths now. I put a high likelihood some sectors (likely these three) will face an absolute cap from 2027. But this 2027 could be a compliance year, e.g. emissions, meaning the compliance of their 2027 emissions by the end of 2028.”
Still, experts argue that the market has had limited impact so far because companies receive so many free allowances. The program began in 2021 with coverage limited to the power sector.
What will be the true impact on emissions?
Continuing its rapid industrial expansion China has continued approving fossil fuel energy sources with coal front and center. A recent report said China’s commissioning of coal power is at a 9-year high in the first half of 2025.
The country revealed a new action plan that maintains the course of building of additional coal-fired power plants until at least 2027, but under conditions designed to curb emissions and accelerate the shift toward renewable energy.
Will the hard cap in the carbon market and pricing influence emissions? “In terms of the impacts on actual emissions, I think the effects of the carbon price will be less compared with industrial policies, such as the policy to curb overcapacity. The cost-passthrough mechanism is not mature and the regulator will be cautious in setting the carbon price too high. This means the level of ETS price will be quite below abatement technologies.
My view is that China ETS is still in the phase of expansion and enhancement until 2030, and its main role is to establish a robust MRV system for power, industry, aviation sectors’ major emitters,” explains Yan Qin.
Read more: China Formally Expands Carbon Market To Heavy Industries, Targets Emissions Reduction
