China and the new carbon order

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In mid-August, while everyone else in the carbon markets was heading for the beach, China's vice ecology and environment minister announced that the petrochemical and chemical industries will be covered by the national carbon market from 2027.

The country's emissions trading scheme was originally launched in 2021, initially covering only power generation before steel, cement and aluminium were added in 2025. The inclusion of petrochemicals and chemicals will bring the total share of national CO2 emissions covered to 80%.

The decision to extend the reach of China's carbon market comes as exporters of carbon intensive products (whether based in China or elsewhere) face increasing trade restrictions tied to carbon intensity. For example, Europe's Carbon Border Adjustment Mechanism (CBAM) was introduced at the start of 2026, while the UK CBAM comes into force on 1st January 2027 (see What constitutes an “effectively paid” carbon price?).

In public at least, China has framed CBAM as protectionist and harmful to economic growth. In private the government recognises that complying with CBAM is a serious issue and that in order to mitigate the impact it must bolster its institutional credibility. Expanding the impact of carbon pricing to petrochemicals and chemicals - one of the most hard-to-abate industries - is vital if China is to further reduce its carbon intensity and set the stage for a sustained decline in emissions.

The announcement also represents a much bolder, longer-term strategic response to climate change from China's leaders. Back in July, China released a five-year plan outlining its plans to respond to climate change between 2026 and 2030. Its the first time that authorities have issued a multi-year plan covering all aspects of climate policy, and shows how it is rising in importance within the country's long-term strategy.

It also comes as the country heads toward its first major carbon commitment - reaching peak CO2 emissions before 2030 (data shows they have been flat or falling since March 2024), and cutting the carbon intensity of its GDP by more than 65% from 2005 levels. The five-year plan also sets a target of reducing CO2 emissions per unit of product in ETS covered sectors by around 3% by 2030, relative to 2025 levels.

Furthermore, in late 2025, China's President Xi Jinping personally announced that China would cut greenhouse gas emissions by at least 7-10% below peak levels by 2035. In 2025 authorities declared that China’s ETS will transition from an intensity-based carbon market, to one with an absolute cap on emissions. Industries with a stabilised emissions path will begin to adopt an absolute cap on their emissions from 2027, with the market migration scheduled to be completed on a national basis by 2030 (see Readying for the descent: Proposed reforms to China's emissions trading system suggest the government is preparing for peak emissions).

Crucially, the five-year plan also signals that China is looking to play a much more active role in shaping global climate action. The plan suggest that China should markedly increase its “influence, guiding power, shaping power and moral appeal” and "build a new narrative on climate governance". As China increasingly asserts itself and sets the rules in other realms, climate policy and carbon markets will be no different.

Carbon pricing ultimatum

As in the commodity markets that it dominates, China is likely to be the largest buyer of international carbon credits. Expanding its global influence means that China is going to want to take the lead in setting the rules to Article 6 and establishing the standards. It's with that background that the China Carbon Markets Conference takes place on 15th September in Wuhan.

It's here where China is likely to move forward on one of its key aims: expanding the international influence of its national carbon market. The Open Coalition on Compliance Carbon Markets was launched last November in Brazil at the COP30 summit and aims to strengthen global cooperation and development of carbon pricing. Although Brazil will chair the coalition for the first two years, China and the European Union are co-chairs (see Join the club).

The Coalition's work plan will be formally adopted at the talks in Wuhan. Top of the list of priorities is likely to be enhancing the effectiveness of domestic carbon pricing mechanisms, encourage a race to the top for carbon credit quality, and improving the international compatibility of carbon accounting methods. As well as ensuring a level playing field for China's carbon intensive industries, it also provides a source of sustained demand for the companies delivering its clean energy revolution.