China’s Carbon Market Is Becoming More Liquid: What Rising ETS Trading Means for Prices, Policy and Global Signals

Why a surge in trading volume matters for carbon price discovery in China

China’s national ETS is becoming a more active price-setting market. By the end of 2025, cumulative quota trading had reached about 865 million tonnes, with cumulative value near RMB 49.83 billion, and 2025 trading volume and value both rose sharply year on year.

That matters because more trading usually means better price discovery. When more obligated entities, brokers, and compliance desks participate, spot quotes tend to reflect marginal abatement costs more clearly, especially near surrender deadlines and after policy updates.

Liquidity also reduces execution friction for industrial operators. A market with more turnover and narrower bid-ask spreads makes it easier to buy allowances, rebalance positions, and manage compliance risk without moving the price as much.

For buyers and carbon traders, the practical value is better internal carbon accounting. CFOs, procurement teams, and sustainability leads can benchmark shadow carbon prices against observable market trades instead of relying only on modeled abatement assumptions.

Higher volume does not automatically mean stronger prices, though. Liquidity can rise faster than scarcity if free allocations remain generous or compliance demand is still limited to a narrow sector base.

How sector expansion into steel, cement and aluminium could change demand for allowances

China expanded its national carbon market in March 2025 to steel, cement and aluminum smelting. That added about 1,500 companies and moved the system beyond the power sector for the first time since launch.

Official 2025 quota-management data show 3,378 key emitters under the market, including 232 steel, 962 cement, and 97 aluminum smelting entities. Compliance demand is now a broader industrial story, not just a utility-market story.

For industrial buyers, the commercial implication is direct. Large emitters in steel, cement and aluminium will need to translate plant-level output and emissions intensity into allowance demand, which can affect procurement strategy, production planning and marginal cost pass-through.

These sectors are structurally different from power generation. Their emissions are tied to process chemistry and fuel mix, so compliance behavior may create more uneven demand patterns and make the market more sensitive to sector-specific benchmarking and allocation rules.

That broader sector base can increase recurring demand for permits. It also raises the importance of offset supply and compliance flexibility, which brings CCERs into the picture.

What the restart of CCERs could mean for supply, offsets and market balance

China’s CCER market restarted in 2024 after a long suspension, and the first batch of certified voluntary emission reductions was registered on March 6, 2025, with trading beginning on March 7.

By the end of 2025, 33 voluntary emission reduction projects had been registered, covering more than 17.76 million tonnes of reductions, and CCER trading had reached nearly 9.22 million tonnes.

For project developers and carbon asset aggregators, that restart matters. CCERs can support project finance for forest sinks, renewable energy, methane capture and other methodologies, while also creating a secondary demand channel from compliance entities seeking flexible surrender options.

The practical effect on market balance is that offsets may cap near-term pressure on allowance prices if supply expands faster than compliance demand. That risk is stronger when new sectors come in gradually and allocation rules remain in transition.

The market may therefore become more functional without necessarily becoming tighter or more expensive. That is a useful distinction for buyers watching both allowance trading and offset supply.

Why higher liquidity may improve confidence but not automatically strengthen the carbon price

More trading volume can improve market confidence by making ETS pricing more visible and reducing information asymmetry. It does not guarantee a higher clearing price if supply remains ample or demand is still administratively managed.

China’s system still relies heavily on free allocation and intensity-based benchmarking. Even with better turnover, price strength depends on how quickly policy tightens quotas, expands sector coverage and reduces excess supply.

For operators, that means the market can become easier to trade while still producing a relatively modest price signal compared with tighter cap-and-trade systems. Firms should separate liquidity risk from scarcity risk in carbon budgeting.

A buyer should therefore treat the ETS as both a compliance tool and a strategic planning reference. It can improve internal carbon pricing, but it may not yet deliver the kind of strong abatement incentive seen in more mature markets.

The bigger strategic question is how this evolving liquidity profile will influence policy credibility and market design globally, especially for cross-border buyers watching China alongside the EU ETS and other large compliance systems.

What China’s ETS momentum could mean for global carbon markets and cross-border policy watchers

China is a major test case for whether a large industrial economy can scale carbon pricing across power, steel, cement and aluminium while maintaining market stability and administrative control.

For multinational buyers, investors and exporters, China’s ETS matters because it influences embedded carbon costs in commodities such as steel, cement and aluminium. Those costs increasingly shape supply-chain due diligence, procurement decisions and future CBAM-style exposure.

The 2025 expansion and CCER restart also send a policy signal. China is moving from a single-sector market toward a broader compliance architecture, with official statements pointing to continued scaling of the national carbon trading framework in the coming years.

For cross-border policy watchers, the market’s evolution offers a live benchmark on how free allocation, benchmarking, voluntary offsets and phased sector inclusion interact in a large carbon market. The lessons are relevant for market design, MRV, and industrial decarbonisation finance.

The bottom line is simple. Rising liquidity may make China’s ETS more credible as a signal, but its global relevance will depend on whether tighter rules, deeper sector coverage and stronger offset governance eventually convert activity into durable price pressure and measurable emissions cuts.