What Is China’s National Carbon Trading Scheme?

What Is China’s National Carbon Trading Scheme?

China’s National Carbon Emissions Trading Scheme (全国碳排放权交易市场, quánguó tàn páifàng quán jiāoyì shìchǎng) — commonly referred to as the national ETS — is the world’s largest carbon market by volume of emissions covered. Launched in July 2021, the national ETS initially covered the power generation sector, which accounts for approximately 4.5 billion tons of CO2 emissions annually. In 2025, the scheme is expanding to cover additional industries including cement, aluminum, steel, and petrochemicals, making registration relevant to a broader range of enterprises.

The national ETS operates on a cap-and-trade principle. The government sets an emissions cap for covered sectors and issues emissions allowances to covered enterprises. Enterprises that reduce their emissions below their allowance can sell surplus allowances. Enterprises that exceed their allowance must purchase additional allowances from the market or face penalties. The carbon price in China’s national ETS has fluctuated between RMB 50 and RMB 80 per ton of CO2 since 2023, with an average price of approximately RMB 65 per ton in early 2025.

For foreign-invested enterprises (FIEs) in China, registration in the national ETS is mandatory if your facility falls within a covered sector and meets the emissions threshold. This FAQ provides a step-by-step guide to the registration process and explains what foreign companies need to know.

Which Enterprises Must Register?

The national ETS currently covers enterprises in covered sectors with annual energy consumption exceeding 10,000 tons of standard coal equivalent (tce), which corresponds to approximately 26,000 tons of CO2 emissions. This threshold captures the largest emitters in each sector while excluding smaller enterprises.

Decision Framework: If your facility is in the power generation sector (coal-fired, gas-fired, or biomass power plants) with annual emissions over 26,000 tons CO2, you are already required to register and have been since 2021. If your facility is in the cement, aluminum, steel, or petrochemical sectors and your emissions exceed 26,000 tons CO2, you must register under the 2025 expansion. If your facility is in a sector not yet covered by the national ETS, you are not currently required to register — but voluntary registration may be possible under pilot programs in certain provinces.

As of early 2025, approximately 2,250 enterprises are registered in the national ETS, including approximately 180 FIEs. With the 2025 sector expansion, an additional 1,500 to 2,000 enterprises are expected to register, including an estimated 120 to 150 more FIEs. The carbon market is projected to cover approximately 8 billion tons of CO2 emissions by 2026, representing over 60% of China’s total national carbon emissions.

Step-by-Step Registration Process

Registration for China’s national ETS involves five key steps. First, your facility must be identified as a covered enterprise by the provincial Department of Ecology and Environment (DEE). The DEE uses energy consumption data reported by enterprises and statistical data to identify covered entities and issues a notice of inclusion. If you believe your facility meets the threshold but has not received a notice, you should proactively contact your provincial DEE.

Second, you must appoint a carbon emissions manager and establish an internal carbon management team. The regulations require enterprises to designate a senior manager responsible for carbon compliance and to maintain an adequate number of trained personnel. The carbon emissions manager must complete MEE-approved training and pass a certification examination.

Third, you must register on the national carbon emissions trading registration platform (全国碳排放权注册登记系统). The registration process requires submission of your facility’s basic information, emissions data for the previous three years, and documentation of your measurement and reporting procedures. The platform is administered by the Hubei Carbon Emissions Trading Center in Wuhan, which serves as the national registration authority.

Fourth, you must prepare and submit your facility’s greenhouse gas emissions report for baseline verification. The emissions report must be prepared in accordance with the MEE’s Guidelines for Enterprise Greenhouse Gas Emissions Accounting and Reporting (2022) and must be verified by a qualified third-party verification body approved by the MEE. The verification body must be independent of your organization and hold the necessary accreditation.

Fifth, after verification, your emissions data is reviewed by the provincial DEE and used to determine your facility’s allowance allocation. Allowances are typically allocated free of charge based on historical emissions (grandfathering) or sector-specific benchmarks (benchmarking), with the benchmarking approach being phased in for most sectors. Once allowances are allocated, you can begin trading on the national carbon market.

The total registration process typically takes 3 to 6 months from initial notification to active participation in trading. However, for enterprises that proactively prepare their emissions data and engage verification bodies early, the timeline can be reduced to 2 to 4 months.

What Are the Reporting and Compliance Obligations?

Once registered, covered enterprises face ongoing compliance obligations. You must submit an annual greenhouse gas emissions report by March 31 of each year, covering emissions from the previous calendar year. The report must be prepared in accordance with MEE guidelines and include data on all six greenhouse gases covered by the Kyoto Protocol — carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6). In practice, CO2 accounts for approximately 95% of covered emissions.

The emissions report must be verified by a qualified third-party verification body by April 30 of each year. The verification body conducts a site visit, reviews your monitoring equipment and procedures, and assesses the accuracy and completeness of your emissions data. After verification, you must surrender allowances equal to your verified emissions by December 31 of each year. Allowances that are not surrendered are counted as compliance shortfalls.

Failure to submit a timely emissions report or to surrender sufficient allowances results in penalties including fines of RMB 20,000 to RMB 30,000 for late reporting and a penalty of three times the average carbon price for allowance shortfalls (i.e., if the average carbon price is RMB 65 per ton, the penalty for each ton of shortfall is RMB 195). In 2024, MEE imposed compliance penalties on 127 enterprises, with total fines of approximately RMB 65 million.

How Can Foreign Companies Trade Carbon Allowances?

Trading in the national ETS is conducted through the Shanghai Environment and Energy Exchange (上海环境能源交易所), which serves as the national trading platform. Covered enterprises can trade allowances through the exchange’s electronic trading system, either directly or through authorized brokers.

There are two main types of carbon products: Carbon Emissions Allowances (CEAs), which are the primary compliance instrument, and China Certified Emission Reductions (CCERs), which are offset credits generated from voluntary emission reduction projects such as renewable energy, forestry, and methane capture projects. Covered enterprises may use CCERs to offset up to 5% of their compliance obligation.

Foreign companies registered in the national ETS should develop a carbon trading strategy that accounts for their expected allowance surplus or shortfall, projected carbon price trends, and the cost of emission reduction measures. Most FIEs with surplus allowances in 2024 chose to sell them on the exchange, realizing average revenues of RMB 350,000 per facility. FIEs with allowance shortfalls typically purchased allowances at an average cost of RMB 550,000 per facility.

Three Common Pitfalls for Foreign Enterprises

Pitfall 1: Underestimating the time and cost of third-party verification. Many FIEs are unfamiliar with the MEE’s verification requirements and assume the process is similar to international carbon accounting standards. The cost: inadequate verification preparation leads to failed verification and extension of the registration timeline by 2 to 3 months, with additional costs of RMB 50,000 to RMB 150,000. The fix: engage a verification body early in the process (at least 3 months before the reporting deadline) and conduct a pre-verification internal audit using the MEE’s verification checklist.

Pitfall 2: Failing to calibrate monitoring equipment for Chinese standards. China’s carbon emissions monitoring standards differ from international practices, particularly in emission factor calculations and measurement methodologies. The cost: non-compliant monitoring procedures result in data rejection by verification bodies and potential fines for inaccurate reporting. The fix: ensure your monitoring equipment and procedures comply with the MEE’s Enterprise Greenhouse Gas Emissions Accounting Guidelines (2022 version), and have your monitoring protocols reviewed by a qualified Chinese carbon consultant before the reporting period begins.

Pitfall 3: Missing the annual compliance deadlines due to internal approval delays. The annual emissions report submission on March 31 and allowance surrender on December 31 are fixed deadlines with no extension provision. The cost: late submission penalties of RMB 20,000 to RMB 30,000 and potential public disclosure of non-compliance, which can affect the facility’s environmental credit rating. The fix: establish a carbon compliance calendar with internal deadlines 30 days before each regulatory deadline, and assign clear responsibility to a designated carbon compliance officer with authority to approve submissions.