China officially adds 1,500 steel, aluminium and cement firms to national carbon market

Move comes as European think-tank calls for carbon prices to be “partially socialised” to protect industry

China has firmed up plans to add steel, aluminium and cement companies to its national carbon market.

The environment ministry published details on Wednesday of how it will expand and regulate its emissions trading system (ETS) over coming years, including by adding 1,500 new firms into the market.

China’s ETS has been around since 2021, but only covers power producers – although many firms in other sectors are captured by municipal ‘pilot’ markets.

Starting this year, steel, aluminium and cement companies will join the national system, increasing its coverage from 40% of Chinese emissions to 60%.

The new entrants will need to account for their 2024 emissions onwards.

Unlike the EU’s, China’s ETS doesn’t require firms to buy allowances if their absolute emissions exceed an agreed level, because China plans to continue growing its emissions until 2030.

Instead, it identifies a carbon intensity target for each sector, and companies that aren’t efficient enough to meet that target need to buy allowances.

The target could be switched to a traditional cap after the 2023 peak.

The 2025 thresholds are based on 2024 emissions, meaning there won’t be a significant demand for allowances, unless companies decide to hedge against the likelihood of prices rising over coming years.

For now, it’s unclear how the introduction of steel, cement, iron and aluminium into China’s national system will impact the price of imports covered by the EU’s Carbon Border Adjustment Mechanism.

Under the current rules, the levy on goods from countries with their own carbon prices is discounted, to account for the fact the product has already had its pollution priced in.

The recent EU carbon price in Europe is around €75, compared with between €13 and €25 under the Chinese ETS.

This week, pro-business think-tank the European Roundtable on Climate Change and Sustainable Transition published a report on the implications of the EU ETS on competitiveness.

It said that, while carbon prices are necessary to drive decarbonisation, the costs should be “partially socialized” and there is room for more free allocations for industrial players.