(Yicai) Aug. 27 -- China plans to adopt a cap-and-trade emissions system by its 2030 carbon peak deadline, requiring heavily polluting firms to pay for emissions that exceed state-imposed limits.

The government aims to establish a national carbon trading market based on total emissions quotas during the 15th Five-Year Plan (2026-2030), according to a document released by the General Office of the State Council recently. The system will combine both free and paid allocations, gradually shifting toward full market-based pricing to encourage greener business practices.

China also plans to develop a voluntary carbon market for firms seeking to reduce greenhouse gas emissions, aligning with international standards and forming a carbon pricing mechanism with rational price levels.

Under the cap-and-trade model, authorities will set an overall emissions cap, and companies that exceed their quotas will be required to purchase additional permits through the carbon market. Until now, China has issued free emission allowances based on output without placing a cap on total emissions, as part of a gradual transition toward its targets of peaking carbon emissions by 2030 and achieving carbon neutrality by 2060.

As of yesterday, the carbon permit price in the national market closed at CNY69.69 (USD10) per ton, slightly down from last week’s average of around CNY72. Since the market's launch, the carbon price has risen from CNY48 per ton to a peak of CNY105 (USD15) and has now stabilized at about CNY70. The cumulative trading volume has reached 690 million tons, with a turnover of CNY47.5 billion (USD6.6 billion).

Since the beginning of this year, mandatory quotas have expanded beyond the power sector to include key industries such as steel, cement, and aluminum smelting. The latest plans call for comprehensive coverage of all major emitting industries by 2027.

Industry insiders told Yicai that the new policy document clarifies the carbon market’s positioning, long-term goals, and development path from the central government’s perspective, helping participants better understand their future roles.

Zhang Da, director of the Institute of Energy, Environment and Economy at Tsinghua University, told Yicai that many countries begin with free allocations as they are easier to implement and reduce pressure on enterprises. However, he said that auction-based paid allocations are inevitable for improving emissions reduction efficiency.

By developing effective trading strategies, companies can reduce transaction costs by choosing between bidding for quotas and purchasing them directly from the market, Zhang added.

Pang Jun, dean of the School of Ecology and Environment at Renmin University of China, told Yicai that the domestic carbon market remains unlinked with international markets, preventing the use or sale of overseas carbon credits.

However, Pang said that international mutual recognition should become a priority as domestic rules move closer to global standards, including the gradual adoption of cap control and an increase in paid allocations.

Editor: Emmi Laine