China expands carbon market to steel, cement, aluminum

China's carbon trading system to come into operation in 2021. Illustration photo

On March 26, China's Ministry of Environment announced that the country will expand its carbon trading market to the steel, cement and aluminum industries, forcing an additional 1,500 businesses to buy carbon credits to offset emissions from production facilities.

With this move, the total amount of CO₂ subject to trading will increase to 8 billion tonnes, accounting for more than 60% of China's total emissions, an environment ministry spokesman said.

Adding heavy industries to the carbon trading system would not only help China meet its climate goals, but also create a market mechanism that would encourage businesses to close outdated, polluting factories and switch to less-emissions technology.

China’s carbon trading system, which began operating in 2021, now covers more than 2,200 power plants, which collectively emit around 5 billion tonnes of CO₂ each year. Under the scheme, companies are given free emissions quotas based on industry standards set by the government . If they exceed their quotas, they must buy additional carbon credits on the market.

In the initial phase of the expansion, only the highest emitters in the steel, cement and aluminium sectors will be required to buy additional allowances. The cap will initially be high enough to cover all emissions in 2024, and will be gradually tightened over time. However, the government has pledged to make small, incremental adjustments to avoid a major impact on the economy .