👀 The world’s biggest carbon market just got BIGGER

🤯 The Chinese emission trading system is a whopping 6x the size of Europe’s ETS and now covers 60% of all Chinese and 15% of global emissions. Mind-blowing.

Honest admission: I knew almost nothing about the world’s biggest carbon market until I started doing my own research. It’s fascinating:

◾The ETS was launched in 2021, designed to support the national goal of peak emissions in 2030 (65% reduction vs 2005) and net-zero in 2060

◾The ETS started with power (2021 - 5Gt - 40% of national emissions) and was expanded with steel, cement, and aluminium (2025 - 3Gt - 20% emissions).

SO HOW DOES IT WORK? It’s quite different from the EU ETS.

🔎 For now, it is largely a monitoring tool. Companies have to report their emissions (99% compliance so far) and have to acquire allowances if they exceed their sector-specific carbon intensity benchmark.

🔢 The total ‘cap’ - for now - is therefore the sum of all allocations, which depends on actual output and is only known after the year ends.

⏩ Starting from 2027, absolute caps will be introduced and progressively shift to a mixed system of free and paid allocation by 2030, including auctioning.

🚫 Allowances are not defined as financial instruments, and derivatives are not permitted, with purchased allowances treated as balance-sheet assets under interim accounting policy. This is aimed at preventing speculation, but might be eased in future.

SO WHAT ABOUT CARBON REMOVALS? This is where it gets interesting:

🛡️ China developed the China Certified Emission Reduction (CCER) Programme to certify offsets for the domestic voluntary carbon market.

🏭 ETS subjected entities can cover up to 5% of their verified annual obligations with CCERs - potentially 400Mt / year already!

🏗️ So far, five verification bodies have been accredited under the CCER, over 70 projects have applied, and nine projects have issued a combined 9.48 MtCO₂e.

🌲 Current approved methodologies focus on afforestation, mangroves, biomass energy, and methane recovery. Carbon removals such as biochar, BECCS, or DACCS are not yet recognised.

🇨🇳 So where does this leave us? My personal prediction is that China will do here what it does best: leapfrog and surprise many outside observers. Yes, the Chinese ETS is still small in financial terms, reaching only CNY 18 billion in 2024 (€2b). And its current allowance price is still very low at CNY 95.96 per tonne (€11.4).

📈 But it is only a matter of time before those prices will rise. And the sheer volume of emissions covered is unparalleled at 8Gt - plus the government plans to add more sectors to it! Couple this with the already established CCER Programme and 5% VCM credit threshold, and you can quickly see how this could become a game-changer.

💬 Over to you: who is working on this? Where are the Chinese ETS experts and where are the Chinese CDR developers working hard on getting durable removals into the CCER?

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