China will expand its national carbon market to cover about 80% of the country’s total CO2 emissions under a new climate plan for the 15th Five-Year Plan period (2026-2030). The plan, jointly issued by the Ministry of Ecology and Environment and 17 other government departments, brings chemicals, petrochemicals, civil aviation, and papermaking into quota management and sets China’s first quantitative target for non-CO2 greenhouse gases. For buyers, project developers, and investors, the world’s largest carbon market by covered emissions is about to get substantially bigger.
The expansion is the clearest signal yet that Beijing intends the national emissions trading system to carry a larger share of its climate policy load through the end of the decade.
What the New Round of Expansion Adds
According to the plan, the new sectors entering the market include chemicals, petrochemicals, civil aviation, and papermaking, alongside other industries not yet named in detail. Once implemented, quota management would extend from the more than 65% of national CO2 emissions covered in 2025 to roughly 80%.
The scale of the existing system gives the expansion weight. In 2025, a total of 3,378 key emitters were included in the carbon emission trading market’s quota management, according to ministry data. Adding four or more industrial sectors to that base means several thousand additional installations will need compliance strategies, allowance procurement plans, and verified emissions reporting.
The plan also calls for fully leveraging the national carbon market to support control of both the total volume and the intensity of carbon emissions, and for extending the market to more industries and more greenhouse gases. That dual mandate, absolute volume alongside intensity, is a notable design statement for a system that has so far worked mainly through intensity-based allocation.
The Market It Builds On
Five years after launch, the national ETS has moved from a policy experiment to a functioning compliance market. Cumulative trading volume of carbon emission quotas has exceeded 926 million tonnes since the market was established, with total turnover of 62.475 billion yuan, about 9.23 billion US dollars.
Activity is accelerating rather than plateauing. In the first half of 2026, trading volume reached 52.96 million tonnes, up about 37% year on year. Rising liquidity matters for the incoming sectors: a deeper secondary market gives new entrants a more reliable price signal and lowers the transaction costs of compliance.
For international observers, these volumes still sit far below the EU ETS in value terms, but the direction is consistent. More covered emissions, more participants, and rising turnover are the preconditions for the market to function as a genuine price discovery mechanism rather than a purely administrative compliance tool.
A Design Shift Toward Paid Allocation and Carbon Finance
The plan’s language on market design points to tighter allocation over time. Zhang Xin, chief economist of the National Climate Change Strategy Research and International Cooperation Center, said industries that have already peaked their carbon emissions, or those with saturated production capacity, should be the first to face total emission control. He also called for paid allocation of quotas and a gradual tightening of the baseline for free allocations.
That sequencing matters for covered companies. Free allocation has kept compliance costs low and carbon prices modest. Introducing auctioning or other paid allocation mechanisms, even gradually, would raise the cost of emissions and strengthen the incentive to abate rather than purchase.
Zhang also framed the market’s evolution in financial terms, calling for a shift from compliance-driven activity toward carbon asset management and the orderly development of carbon finance and derivatives. More emitters, he argued, would help keep prices at a proper level. For financial institutions and traders watching China, that is an explicit invitation to prepare for a more financialised market.
Non-CO2 Gases Enter the Frame
Alongside the ETS expansion, the plan establishes a quantitative target to build capacity for reducing 30 million tonnes of non-CO2 emissions by 2030. This is China’s first hard number on gases such as methane, nitrous oxide, and fluorinated gases, which have historically sat outside the main policy architecture.
The two tracks are linked. The plan explicitly contemplates extending the carbon market to more greenhouse gases, which opens the possibility that non-CO2 abatement could eventually generate tradable compliance value. For developers working on methane capture, industrial N2O abatement, or refrigerant projects, a quantified national target creates a demand anchor that did not previously exist in China.
What It Means for Buyers, Developers, and Investors
For companies covered by the expansion, the immediate task is preparation: emissions data quality, verification arrangements, and internal carbon pricing will determine how painful the first compliance cycles are. Firms in chemicals, petrochemicals, aviation, and paper should assume that free allocation will tighten over the plan period and budget accordingly.
For project developers, the non-CO2 target is the more interesting signal. A 30 Mt abatement capacity goal implies project pipelines, methodologies, and MRV infrastructure that will need to be built largely from scratch. Early movers in methane and industrial gas abatement in China will be positioned for whichever crediting or compliance mechanism emerges.
For investors and international buyers, the watch items are concrete. First, the implementing rules for the new sectors: allocation methods and benchmarks will determine price impact. Second, any move toward paid allocation, which would mark the market’s transition from administrative tool to cost signal. Third, how non-CO2 gases are brought into the market framework, since that decision will shape credit supply and demand in one of the world’s largest potential offset markets.
China’s carbon market has spent five years building breadth. The 15th Five-Year Plan is the moment it starts building depth.
