On February 9, 2026, the general office of the Ministry of Environment and Ecology (MEE) issued the Notice on Ensuring the Proper Implementation of Work Related to the National Carbon Emissions Trading Market for 2026 (hereinafter referred to as “the Notice”), laying out priorities and principles of the 2026 national carbon market management system. 

Main Requirements 

By October 31, 2026, provincial-level competent departments of ecology and environment are required to publish the list of key emitting entities in the power generation, steel, cement, and aluminum smelting sectors for the year 2027. The list will be made available to the public through the National Carbon Market Management Platform (hereinafter referred to as “the Management Platform”, website: https://www.cets.org.cn) as well as the official websites of the provincial-level authorities.

The management of key emitting entities shall follow a full-cycle closed-loop framework that integrates list formulation, monthly data verification, annual reporting, allowance compliance, and verification supervision. This integrated approach is designed to create a coherent and traceable system for regulatory oversight. 

With respect to allowance allocation and compliance:

- Advance allocations for the 2025 compliance cycle are scheduled to be completed by April 10, 2026, for key emitting entities in the steel, cement, and aluminum smelting sectors

- By June 30, 2026, for those in the power generation sector. Based on the results of the 2025 verification, provincial-level authorities will determine the final allowance amounts for key emitting entities in the four sectors in accordance with the annual total allowance cap and the allocation plan.

- The relevant data sheets must be submitted in writing to the National Carbon Emissions Registration Institution by September 20, 2026, for registration of the verified allowances. Formal allocation of the 2025 allowances to these entities will take place by September 30, 2026.

In parallel, six industries—namely petrochemicals, chemicals, building materials (flat glass), non-ferrous metals (copper smelting), papermaking, and civil aviation—have been brought under the scope of annual greenhouse gas emissions reporting management. This move is intended to strengthen the data foundation for the orderly expansion of the carbon market in the future.

Key Points for the Concern of Stakeholders

Starting from 2026, steel, cement, and aluminum smelting industries will be officially included into the unified regulatory framework of the National Carbon Market of China, marking a significant expansion. The number of regulated enterprises is expected to increase from over 2,200 to more than 3,500, covering approximately 8 billion tons of emissions, which accounts for over 60 percent of China’s total carbon emissions. 

A fundamental shift is underway in the allowance allocation mechanism, as the system transitions from a primarily free allocation model to a hybrid model combining free and paid allocation. Beginning in 2027, the total volume of allowances may be expected to decline year by year in line with the principle of cap-and-trade. Benchmarks will be set for each industry and adjusted downward on an annual basis, with reduction margins varying across sectors. Experience in the power sector suggests that these reductions may range from 2 to 4 percent. The introduction of paid allocation signifies that carbon costs are becoming more tangible, rigid, and long-term in nature. 

General Recommendations 

Close attention should be paid to the implementation of supporting documents such as the Technical Specifications List for Carbon Emissions Accounting, Reporting, and Verification for the National Carbon Emissions Trading Market, which sets out all technical requirements and guidelines for emissions accounting and verification. 

Paid allocation may not represent the endpoint of this evolution. Drawing on EU experience, allowance allocation could ultimately move toward an auction-based model, under which carbon pricing would become a lasting and stable cost constraint. Enterprises that respond passively are likely to face rising costs and diminished competitiveness, while those that proactively pursue the low-carbon transition stand to gain a cost advantage through emissions reduction and to create additiona