China Carbon Market Update: National ETS Covers Cement and Aluminum Sectors — Key Takeaways for Foreign Manufacturers
On March 18, 2024, China’s Ministry of Ecology and Environment confirmed the expansion of the National Emissions Trading Scheme (国家碳排放权交易市场, guójiā tàn páifàng quán jiāoyì shìchǎng) to include the cement and aluminum industries, adding over 2,400 entities and approximately 1.5 billion tonnes of CO₂ to the compliance system. This marks the first major sectoral expansion since the ETS launched in 2021, bringing total coverage to roughly 6,500 enterprises and 7.5 billion tonnes annually—about 75% of China’s industrial carbon emissions. For foreign manufacturers operating in these sectors, the timeline is aggressive: baseline data reporting begins in July 2024, with the first allowance surrender deadline in December 2025.
Background: Why the Inclusion of Cement and Aluminum Matters
The original ETS (2021–2023) covered only the power generation sector—roughly 4,100 entities accounting for 5 billion tonnes of CO₂ per year. Cement and aluminum are the first hard-to-abate industrial sectors added, and their inclusion signals Beijing’s intent to make carbon pricing a primary tool for industrial decarbonization. Cement alone contributes 13% of China’s total emissions, while aluminum accounts for 4.5%. Combined, these sectors emit more than Germany’s entire annual CO₂ output (≈680 million tonnes). The expansion moves China’s carbon market from a narrow power-only system to a broad industrial framework, aligning with the EU CBAM (Carbon Border Adjustment Mechanism) phase-in from 2026.
Foreign manufacturers with facilities in China producing clinker, cement, primary aluminum, or aluminum products must now register for compliance, submit third-party verified emissions reports, and hold sufficient allowances (碳排放配额, tàn páifàng pèi’é). The government has stated that initial allocations will be largely free, calibrated to historical emission benchmarks, but auctioning may begin by 2027. China’s carbon price, currently hovering at ¥78–85/tonne (≈$11–12), is expected to rise to ¥200–300/tonne by 2030, making forward carbon cost management essential.
Key Compliance Requirements for Cement and Aluminum Facilities
Both sectors share a common compliance cycle, but the methodologies for calculating emissions differ significantly. For cement, emissions come primarily from clinker production (calcination process) and fuel combustion. For aluminum, 75–85% of emissions arise from electricity consumption in electrolysis, with the remainder from anode consumption and direct fuel use. Foreign-owned plants must follow the General Rules for Enterprise Greenhouse Gas Emissions Accounting and Reporting (GB/T 32150-2022) and submit data through the national MRV (Monitoring, Reporting, Verification) platform.
The critical dates are:
- July 1, 2024: Submission of 2023 baseline emissions data
- December 31, 2024: First-third party verification window closes
- June 30, 2025: Mid-year compliance check (preliminary surrenders)
- December 31, 2025: First complete allowance surrender deadline
Non-compliance penalties include fines of ¥30,000–50,000 for late reporting and deduction of allowances or forced purchases at market price plus a surcharge of 20% for under-surrender. In severe cases, regulators can suspend operations—a risk no foreign manufacturer can afford.
Comparison of Sector-Specific Emission Intensities
| Metric | Cement (per tonne clinker) | Aluminum (per tonne primary Al) |
|---|---|---|
| Average CO₂ emissions (tonnes CO₂e/unit) | 0.85 – 0.93 | 12.5 – 15.0 |
| Process emissions share | 60–65% (calcination) | 15–20% (anode & fuel) |
| Electricity-related share | 10–15% | 75–85% (indirect) |
| Benchmark allowance allocation | 0.75 tCO₂/t clinker (free) | 12.0 tCO₂/t Al (free) |
| Estimated compliance cost (current ¥81/tCO₂) | ¥6–¥15 per tonne clinker | ¥40–¥240 per tonne Al |
Note: Compliance cost range depends on how far facility emission intensity is above the benchmark. Plants below benchmark have surplus allowances to sell; those above must purchase.
Strategic Implications for Foreign Manufacturers
Foreign manufacturers face three immediate challenges. First, data quality and verification—China’s MRV system requires third-party verification by CNAS-accredited bodies (中国合格评定国家认可委员会, Zhōngguó hégé píngdìng guójiā rènkě wěiyuánhuì). Foreign-owned plants should audit their emission monitoring infrastructure now, as gaps will delay reporting and risk fines. Second, allowance allocation uncertainty—while free allocation covers ~90% of historical emissions in the first compliance period, these benchmarks will be lowered by 3–5% annually starting in 2026. Manufacturers that do not invest in abatement technology will face escalating costs. Third, CBAM linkage—EU importers of cement and aluminum from China will need to prove that a carbon price has been paid, or pay a surcharge. China’s ETS compliance records will serve as evidence, and foreign manufacturers that can demonstrate lower carbon intensity may gain a pricing advantage in export markets.
Cost: A cement facility emitting 0.93 tCO₂/t clinker against a 0.75 benchmark must purchase allowances for 0.18 tCO₂ per tonne. At ¥81/tCO₂, for a 2-million-tonne clinker plant, that’s ¥29.2 million annually—recurring.
Fix: Commission an independent carbon baseline assessment now to understand your facility’s performance relative to benchmarks.
Cost: Reporting errors can trigger re-verification costs of ¥80,000–¥150,000 per cycle plus penalties for late resubmission.
Fix: Use a dual-team approach—your local environmental compliance team plus a China-specialized carbon consultancy with ETS experience.
Cost: In the 2021–2022 power sector compliance, allowance prices spiked 48% in the two months before the deadline.
Fix: Start buying allowances (or short-term forwards) in the first half of 2025—current market liquidity is improving, with daily volume exceeding 5 million tonnes.
Decision Framework for Foreign Manufacturers
If your facility is in the cement or primary aluminum sector, has emissions above 10,000 tCO₂/year, and operates as a standalone plant in China: choose immediate compliance registration, hire a third-party MRV consultant, and begin benchmarking your emission intensity against the national standard. If your facility falls below the threshold (or is a downstream processor like aluminum extruders with no direct alloy production): choose to monitor the ETS for future expansion—fabrication and finishing sectors may be added by 2027.
What’s Next for China’s ETS
By the end of 2025, the National ETS will include power generation, cement, aluminum, and likely steel—the government has already completed test data collection for iron and steel. Petrochemical, paper, and aviation are scheduled for 2026–2028. The carbon price trajectory is expected to intersect with EU ETS prices (currently €65/tonne ≈ ¥510) by 2030 as China internationalizes its market. Foreign manufacturers should treat carbon costs as a permanent operating expense, not a regulatory anomaly. The days of China offering cheap allowances are ending—the transition is structural.
NEXT STEPS
- Complete a carbon readiness audit — Assess your facility’s emission data infrastructure, reporting gaps, and benchmark position. Read our step-by-step carbon readiness guide tailored for foreign-owned industrial plants.
- Develop a forward allowance procurement strategy — Given a tightening market, lock in prices through bilateral contracts or exchange trading. Access our ETS trading forecast and strategy template.
- Align China compliance with global carbon reporting — Ensure your China MRV data is compatible with CBAM and ISSB standards. Schedule a free 30-minute consultation with our carbon compliance team.
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