China Carbon Market Surpasses 600 Billion Yuan as Expansion Accelerates Toward 2027

China's national carbon emissions trading market has surpassed 600 billion yuan in cumulative turnover as of May 2026, with market participants and analysts expecting total cumulative trading volume to exceed the 1 trillion yuan threshold by the end of 2027.

The expansion underscores the rapid scaling of the world's largest carbon market in terms of covered emissions, as Beijing deepens its push toward decarbonisation under its “dual carbon” goals.

China's carbon market has developed through a phased pilot-to-national model. Seven regional pilots were launched in 2011 across provinces and municipalities, covering sectors including power generation and steel, laying the groundwork for a unified national system.

The national carbon emissions trading system formally went live on July 16, 2021, initially covering the power generation sector. It accounted for roughly 40% of the country's total carbon emissions, making it the world's largest carbon market by covered emissions at launch.

In January 2024, China restarted its voluntary emissions reduction trading scheme, strengthening a dual structure combining mandatory and voluntary mechanisms.

By 2025, the market expanded to include steel, cement, and aluminium smelting, extending coverage to about 65% of national emissions. By the end of 2025, cumulative trading reached 865 million tonnes and 576.63 billion yuan in value.

As of June 2026, the system covers power generation, steel, cement, and aluminium smelting, with around 3,378 enterprises participating. According to policy guidance issued by the General Office of the Central Committee of the Communist Party of China and the State Council, and implementation measures from the Ministry of Ecology and Environment of China, the carbon market is expected to cover most major industrial emitting sectors by 2027.

These include petrochemicals, chemicals, paper, and aviation. Between 2027 and 2028, petrochemical and chemical subsectors are expected to be gradually included, potentially covering basic chemicals, synthetic materials, and coal-based chemical industries.

Oil and gas extraction, refining, and coal mining sectors are also likely to be incorporated after 2027 or around 2028, though without a fixed timeline. New materials industries are expected to be included alongside broader chemical sector classification rather than through a standalone schedule.

Rising Compliance Costs Expected Across Chemical And Materials Industries

Industry analysts say the inclusion of chemical and new materials sectors will materially reshape cost structures and industrial competition.

Carbon pricing is expected to become the third major rigid cost component for chemical producers, alongside raw materials and energy. Emissions obligations are internalised through allowance allocation and trading, forcing producers to improve efficiency and upgrade processes while aligning with global carbon frameworks.

For high-emission products such as synthetic ammonia and methanol, emissions intensity can reach 2–4 tonnes of CO₂ per tonne of product. At a carbon price of 70 yuan per tonne, costs could rise by 140–280 yuan per tonne of output.

Refining and coal-based chemical production chains, which typically have higher emissions intensity, are expected to face significantly heavier cost burdens. By contrast, lower-emission segments such as polyolefins and biodegradable plastics may face relatively moderate impacts, and firms with prior decarbonisation investments could potentially benefit from green price premiums.

Supply Constraints And Capacity Pressure

Market observers expect the carbon trading system to gradually shift from energy-intensity controls toward total emissions caps.

New capacity in coal-to-chemicals, refining, and synthetic ammonia is expected to face tighter approval requirements and emissions quota constraints. Projects without sufficient allowances may be unable to proceed.

Smaller and less efficient producers are expected to come under increasing pressure as carbon costs compound existing margins, accelerating industry consolidation and exit of high-emission capacity.

Industry Restructuring And Competitive Divergence

China's allocation system is based on benchmark methodology. Companies with emissions performance better than industry benchmarks may generate surplus allowances and profit from selling them in the carbon market, while less efficient producers will need to purchase additional quotas.

Large chemical producers with higher efficiency levels and earlier decarbonisation investments are expected to benefit most, potentially reinvesting gains into carbon capture, utilisation and storage (CCUS), green hydrogen, ammonia and methanol projects.

Smaller enterprises, by contrast, may face heightened financial pressure and consolidation risks as compliance costs rise.

Accelerated Technology Transition Across Industrial Base

The inclusion of new sectors is expected to accelerate technological upgrading, including the phase-out of outdated production capacity and a shift toward energy efficiency, electrification, digitalisation, and low-carbon feedstocks.

Refining companies are expected to continue transitioning from fuel-oriented production toward higher-value chemical outputs, with increasing emphasis on reducing fuel yields and expanding chemical product portfolios. Green hydrogen is also being explored as a replacement for fossil-based hydrogen.

Coal chemical producers are expected to face tighter constraints on traditional coal-to-olefins and coal-to-oil expansion, while shifting toward higher-value coal-based materials such as carbon fibre, biodegradable materials, hydrogen integration, and carbon capture utilisation technologies.

Basic chemical producers are increasingly replacing coal inputs with natural gas and green hydrogen in processes such as ammonia and methanol production, alongside efficiency upgrades including advanced gasification and catalysts. New materials and bio-based producers are also expanding adoption of low-carbon processes and smart manufacturing systems.

Green Products Expected To Gain Export Advantage

Analysts say carbon costs will likely be passed through the value chain, potentially driving short-term price increases across chemical products. Over the longer term, low-carbon products and those aligned with international certification frameworks, particularly European standards, are expected to gain competitiveness in export markets.

High-carbon products may face dual pressure from rising compliance costs and potential trade barriers linked to carbon intensity.

The most significant near-term impact is expected in refining and coal chemical sectors, while basic chemicals will see moderate effects. New materials, specialty chemicals, and biodegradable plastics are expected to experience relatively lower disruption.

However, industry participants across all segments are expected to face growing carbon-related risks and are increasingly urged to prepare early for structural adjustment.