What is the difference between China’s national ETS and voluntary carbon market?

The fundamental difference between China’s national Emissions Trading Scheme (ETS, 碳排放权交易市场, tàn páifàng quán jiāoyì shìchǎng) and the China Certified Emission Reduction (CCER, 国家核证自愿减排量, guójiā hézhèng zìyuàn jiǎn pái liàng) voluntary carbon market is that the ETS is a mandatory compliance market where approximately 2,250 of China’s largest emitters must buy and sell allowances to cover their regulated emissions, while the CCER is a voluntary offset market that allows companies — including foreign-invested enterprises — to generate and trade carbon credits from approved emission reduction projects, with the key linkage being that ETS-covered entities may use CCER credits to cover up to 5% of their compliance obligation. As of 2026, the national ETS traded approximately RMB 23 billion (USD 3.2 billion) in allowance value at an average price of RMB 72 per tonne, while the CCER market — relaunched in January 2024 after a 7-year suspension — had registered 97 projects and traded approximately RMB 1.8 billion at prices ranging from RMB 60–120 per tonne depending on project type and vintage. This guide explains the structural differences, strategic considerations, and practical implications for foreign companies.

China’s National ETS: The Mandatory Compliance Market

China’s national ETS, established under the Interim Regulations on the Administration of Carbon Emissions Trading (碳排放权交易管理暂行条例) effective May 1, 2024, is the world’s largest carbon market by coverage, accounting for approximately 5 billion tonnes of CO₂ annually — more than the EU ETS (1.5 billion tonnes). It operates as a cap-and-trade system where the government sets an emission intensity benchmark for each covered sector and allocates free allowances to installations based on production volume.

Key structural features of the national ETS:

• Coverage — Power generation (the original sector when the ETS launched in 2021), plus cement, steel, and aluminium smelting added in 2024–2025. Petrochemicals, chemicals, paper, and aviation are scheduled for inclusion by 2027–2028. The threshold is 26,000 tCO₂e per year. As of 2026, approximately 2,250 installations are covered.
• Allowance allocation — Free allocation based on product-level emission benchmarks (产品碳排放基准值). Benchmarks are set at the top 10–15% percentile of sector efficiency, meaning the most efficient operators receive surplus allowances while less efficient operators must purchase additional allowances or reduce production. Auctioning was introduced at a pilot level in 2025 (Shanghai, Hubei) but nationwide auctioning is not expected before 2028.
• Trading platform — Trading occurs on the Shanghai Environment and Energy Exchange (上海环境能源交易所, shànghǎi huánjìng néngyuán jiāoyì suǒ), with registration and settlement on the national ETS registration and settlement system (全国碳排放权注册登记系统). Trading hours: 9:30–11:30 and 13:00–15:00, Monday to Friday. Minimum trade size: 1 tonne (1 allowance = 1 tCO₂e). Maximum single order: 1 million tonnes.
• Price mechanism — The ETS price is determined by supply and demand within the allowance cap. In 2025, the average price was RMB 72/tonne, ranging from RMB 58 to RMB 96. The price is significantly lower than the EU ETS (EUR 65–85/tonne in 2025) due to the free allocation system and China’s lower marginal abatement cost. The MEE has indicated it will introduce price stabilisation mechanisms (auction reserve price, market stability reserve) by 2028.
• Compliance cycle — Annual. Companies report emissions by March 31, the MEE confirms verified emissions by June 30, and allowance surrender is due by December 31. Non-compliance penalties: fine of RMB 50,000–200,000 plus deduction of an equivalent amount from the next compliance period’s allowance allocation.
• Market participants — Only ETS-covered entities can trade on the primary compliance market. Financial institutions were permitted for pilot trading in Shanghai and Hubei (2025) but are not yet allowed on the national market. This limits liquidity — the 2025 turnover ratio was approximately 3% of total allocated allowances, compared to 10–15% in the EU ETS.

The CCER Voluntary Carbon Market

The China Certified Emission Reduction (CCER) market, relaunched in January 2024 after a 7-year suspension (2017–2023), is China’s domestic voluntary carbon crediting mechanism. It is administered by the MEE under the Administrative Measures for Voluntary Greenhouse Gas Emission Reduction Trading (温室气体自愿减排交易管理办法, wēnshì qìtǐ zìyuàn jiǎn pái jiāoyì guǎnlǐ bànfǎ). Unlike the ETS, which allocates allowances for free, the CCER market generates credits from emission reduction projects that undergo third-party verification and MEE registration.

The key features of the current CCER market:

• Methodologies (methodologies, 方法学) — As of 2026, the MEE has approved 4 CCER methodologies with more under development: (1) grid-connected renewable energy (wind, solar, biomass, small hydro, geothermal), (2) forestry carbon sink (造林碳汇, zàolín tànhuì), (3) methane utilisation from coal mine gas, (4) methane utilisation from landfill gas and livestock manure. Methodologies under development include CCUS (carbon capture, utilisation, and storage), blue carbon (mangrove and coastal wetland restoration), and soil carbon sequestration.
• Project registration process — A CCER project must: (a) be located in China, (b) have a start date no earlier than 2015 (for pre-2024 projects that can be retroactively registered under transition rules), (c) demonstrate additionality (additionality, 额外性 — the reduction must not have occurred without the CCER revenue), (d) pass third-party validation by an MEE-accredited validation and verification body (26 bodies accredited as of 2026), and (e) be registered on the national CCER registration platform (ccer.mee.gov.cn).
• Credit issuance and vintage — Credits are issued after the emission reduction has occurred and been verified. The crediting period is 10 years (renewable once for 10 more) or a single 20-year period for forestry projects. Vintage-limited: CCER credits from projects registered after 2024 have no expiry, but pre-2024 credits (from the old CCER system, 2013–2017) expire on December 31, 2027.
• Trading and pricing — CCER credits trade on 9 national carbon exchanges (including Beijing Green Exchange, Shanghai Environment and Energy Exchange, Tianjin Emissions Exchange, Shenzhen Emissions Exchange, Hubei Carbon Emission Exchange, and others). In 2025, CCER prices ranged from RMB 60/tonne (renewable energy projects) to RMB 120/tonne (forestry carbon sinks, which are rarer and have higher perceived quality). The price premium over ETS allowances (RMB 72/tonne) reflects the voluntary premium and the limited supply of high-quality forestry credits.
• Use restrictions — The most important restriction: (1) ETS-covered entities may use CCER credits to cover up to 5% of their compliance obligation (a ratio that may increase to 10% by 2028 based on MEE consultations), (2) CCER credits cannot be double-counted and must be retired on the national registry, (3) CCER credits from pre-2024 projects can only be used for voluntary purposes, not ETS compliance (expiring end-2027), (4) entities that purchase CCER for voluntary carbon neutrality claims must follow the MEE’s upcoming corporate carbon neutrality disclosure guidelines (expected 2027).

Key Differences: Compliance vs. Voluntary — Strategic Implications for Foreign Companies

For foreign companies operating in China, the choice between engaging with the ETS or the CCER market depends on what they are trying to achieve:

1. If your China facility is ETS-covered — You must participate in the ETS. Your focus should be on: (a) accurate emissions measurement under MEE MRV guidelines, (b) understanding your facility’s benchmark position relative to the sector’s top 10–15% efficiency threshold, (c) developing a compliance strategy that may include purchasing CCER credits (up to 5% of obligation), energy efficiency investments, or adjusting production volume. The financial stakes are real — an ETS-covered FIE with 500,000 tCO₂e annual emissions faces a compliance cost of approximately RMB 25–40 million at current prices if its emissions exceed its free allocation by 50%.
2. If your China facility is below the ETS threshold — You are not required to participate in the ETS, but you may choose to purchase CCER credits to offset your Scope 1 and 2 emissions for voluntary carbon neutrality claims, ESG reporting, or EU CBAM compliance. The CCER market offers a straightforward mechanism for this, provided that you follow MEE’s guidelines on retirement and disclosure.
3. If you want to generate CCER credits — Foreign-invested enterprises can register CCER projects in China, including renewable energy installations on factory sites (rooftop solar, biogas from organic waste), forestry carbon sink projects on land the company controls, and methane capture from wastewater treatment (if above the CCER methodology size threshold). The revenue potential varies: a 10 MW rooftop solar installation can generate approximately 8,000–10,000 CCER credits per year, valued at approximately RMB 480,000–800,000 at current prices. The project registration process takes 8–14 months and costs RMB 200,000–500,000 for validation, verification, and registration fees.
4. For CBAM compliance under the EU Carbon Border Adjustment Mechanism — The EU CBAM, effective from 2026 (transitional) to 2034 (full), requires importers of cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen to purchase CBAM certificates corresponding to the embedded emissions of imported goods. China’s ETS price (RMB 72/tonne ≈ EUR 9/tonne) is significantly lower than the EU ETS price (EUR 65–85/tonne), so Chinese exporters will face a CBAM surcharge equal to the difference. CCER credits purchased by the Chinese supplier do NOT reduce CBAM liability — CBAM only recognises the carbon price paid in the country of origin (i.e., ETS allowance cost, not voluntary offsets).
5. For voluntary carbon neutrality claims — Both the Chinese domestic market and international markets accept CCER credits for voluntary claims, but with caveats. Chinese regulators require that voluntary cancellation claims (自愿注销声明) specify the CCER credit serial number and the amount retired. International standards (VCS, Gold Standard) are also accepted by Chinese regulators if verified by accredited third parties, but double-counting protections must be in place — you cannot use the same reduction for both CCER and Verra registration.

Transitional Dynamics and Future Outlook (2026–2030)

The ETS and CCER markets are evolving rapidly. Foreign companies should monitor the following expected developments:

• ETS sector expansion — Petrochemicals and chemicals (2027), paper and pulp (2028), and aviation (2029) will bring approximately 3,000 additional entities into the ETS, expanding coverage from 5 to 8 billion tonnes CO₂. Foreign companies in these sectors should begin preparing their MRV systems now — the MEE requires 2 years of historical emissions data at registration.
• Auctioning introduction — Full auctioning of allowances is expected to begin at 10% by 2028, rising to 30% by 2030. This will increase the ETS price as free allocation is reduced. The MEE’s target price trajectory suggests RMB 80–120/tonne by 2028 and RMB 120–180/tonne by 2030.
• CCER methodology expansion — 6 new methodologies are expected by 2027, including CCUS (carbon capture utilisation and storage), blue carbon, soil carbon, methane from rice paddies, electric vehicle charging infrastructure, and industrial energy efficiency (waste heat recovery, motor system optimisation).
• International linkage — China and the EU are in technical discussions (2025–2027) about mutual recognition of carbon pricing. If achieved (2028–2030 projection), Chinese ETS allowances could be accepted for CBAM compliance, eliminating the CBAM surcharge for Chinese exports. This would be the single most consequential development for carbon costs facing foreign manufacturers exporting from China to Europe.
• Carbon neutrality standard — The MEE is developing a national corporate carbon neutrality disclosure standard (企业碳中和披露指南, qǐyè tàn zhōnghé pīlù zhǐnán), expected 2027. This will define which offsets (CCER, international, or both) count towards a “carbon neutral” claim. Early drafts suggest only CCER credits from methodologies with strong environmental integrity (forestry, CCUS) will qualify for “carbon neutral” claims, with renewable energy CCER credits limited to “carbon reduced” claims.

Practical Steps for Foreign Companies

To navigate the dual ETS-CCER system effectively, foreign companies should take the following steps:

1. Assess your China carbon exposure — Calculate your China operations’ Scope 1 emissions (determine ETS applicability), Scope 2 emissions (purchased electricity carbon cost exposure), and Scope 3 emissions (supply chain carbon exposure, relevant for CBAM). Use the MEE sector-specific calculation tools or engage a carbon consultant specialising in the China ETS.
2. Register on the ETS platform if covered — If your facility’s emissions exceed 26,000 tCO₂e/year, ensure you are registered on the national ETS registration and settlement system. Engage an MEE-accredited verifier for your emissions report. The registration process takes 2–4 months if you have the required emissions data.
3. Open a CCER trading account — To purchase or sell CCER credits, open an account on one of the 9 CCER exchanges. The account opening process takes 2–4 weeks and requires: business licence, legal representative ID, authorised trader appointment letter, and anti-money laundering compliance documentation. Costs: RMB 5,000–20,000 one-time registration fee plus RMB 1,000–5,000 annual maintenance fee.
4. Develop a compliance procurement strategy — If ETS-covered, use a combination of free allowances + CCER purchases (up to 5%) + efficiency investments. Scenario analysis: at RMB 72/tonne ETS and RMB 80/tonne CCER, using the full 5% CCER allowance can reduce compliance costs by approximately 3–4% versus purchasing only ETS allowances. The savings increase if the ETS price rises faster than CCER (expected through 2028).
5. Monitor EU CBAM impact — If you export CBAM-covered goods from China to the EU, track the China–EU carbon price differential and prepare for CBAM reporting obligations from 2026 (transitional) and financial liability from 2034. Consider investing in abatement to close the gap.

Where to Go From Here

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What is the difference between China’s national ETS and voluntary carbon market? — first published on China Gateway 360. Last updated: July 2026.