China expands carbon trading market to aluminium, steel, and cement to curb industrial pollution

At the opening ceremony of the 2024 Global Energy Transformation Conference on September 7, Huang Runqiu, Minister of Ecology and Environment, emphasised the need to accelerate green and low-carbon development in China. By the end of the year, key emission industries, including aluminium, steel and cement, will be integrated into the national carbon emissions trading system alongside the power industry.

What is carbon trading market

A national carbon trading market is a carbon pricing system that facilitates the buying and selling of carbon credits and renewable energy certificates. It aims to meet climate goals and advance climate actions in a cost-efficient manner.

Adopting carbon emissions trading is a vital policy tool for reducing greenhouse gas emissions, such as carbon dioxide, through market-based mechanisms. This initiative underscores China's commitment to peak carbon emissions reduction by 2030 and achieve carbon neutrality by 2060.

About the announcement

The announcement was a warning sign to the aluminium, steel and cements sectors to foster green productivity, proactively address climate change, and strengthen global climate governance. Huang also highlighted efforts to enhance the carbon market, expanding its industry coverage, diversifying trading options, and improving the national voluntary greenhouse gas emission reduction trading market.

Aluminium, steel, and cement producers in China will soon face additional domestic costs for carbon emissions as authorities aim to reduce emissions and mitigate the impact of the EU's upcoming Carbon Border Adjustment Mechanism (CBAM), set to take effect in 2026. The mandatory carbon market covers around 2,200 power utilities, but its impact on reducing pollution has been limited due to low carbon prices and taxes. By expanding the three-year-old market, China is preparing to include seven more sectors, with a goal of covering 70 per cent of its total emissions by 2030.

Three key approaches

Huang Runqiu highlighted that from 2013 to 2023, China achieved an average annual economic growth supported by a 3.2 per cent yearly increase in energy consumption while reducing energy intensity by 26.1 per cent. During this period, coal's share in primary energy consumption decreased from 67.4 per cent to 55.3 per cent. Huang emphasised the need to fully leverage ecological and environmental protection's guiding, optimising, and driving role. He outlined three key approaches to accelerate the transition to green and low-carbon development.

• As per the data shared by China Securities Journal, Huang Runqiu will focus on fostering and advancing green productivity by implementing a regional, differentiated, and targeted ecological and environmental management system. Efforts will be made to accelerate the optimisation and adjustment of industrial, energy, and transportation structures. The ministry will promote coordinated pollution and carbon reduction innovation across multiple sectors and levels. They will also enhance policies for green and low-carbon economic development, support the research, development, and adoption of green technologies, and encourage the sustainable and healthy growth of the environmental protection industry.
• Second, the "1+N" policy framework will be implemented to achieve carbon peak and carbon neutrality to address climate change. This will involve shifting from the current dual control of energy consumption to dual control of carbon emissions. The carbon market will be further developed with expanded industry coverage, diversified trading options, and enhancements to the national voluntary greenhouse gas emission reduction trading system. By the end of this year, key high-emission sectors such as steel, cement, and aluminium smelting will join the power industry in the national carbon emissions trading market. They will also improve the carbon pricing mechanism and accelerate the creation of a comprehensive carbon footprint management system.
• Third, it will be to actively engage in global climate governance, taking a constructive role in the multilateral climate change process and promoting international cooperation on climate action.

Note: Most of the information have been sourced from China Securities Journal