China Carbon Trading Market Hits Reset Button as Prices Surge 80 Percent

China carbon market: prices surge 80%, steel and cement added, ¥624B market value.

By CII (China Industry Intel) – Contributing Analyst | June 20, 2026

China’s national carbon trading market, the world’s largest by covered emissions, has undergone a dramatic transformation in 2026. Carbon allowance prices have surged 80% since January, reaching a record ¥120 ($16.50) per ton in May, as the government expands the market to cover new industries and tightens emission caps. The price surge is creating both winners and losers across China’s industrial landscape, and it signals a fundamental shift in how China approaches climate policy.

Market Overview

The most significant development is the expansion of the market beyond the power sector. In January 2026, steel and cement producers were added to the market, bringing an additional 2.3 billion tons of covered emissions. Aluminum producers are expected to join in 2027, with petrochemicals and chemicals to follow in 2028.

Why Prices Are Surging

UPSTREAM: The price surge is driven by three factors. First, the government has tightened emission caps for the power sector by 15% compared to 2025, forcing generators to either reduce emissions or buy more allowances. Second, the expansion to steel and cement has created new demand for allowances, as these industries are heavy emitters. Third, financial institutions have begun trading carbon allowances as an asset class, adding speculative demand.

DOWNSTREAM: The impact is being felt across the economy. Steel producers face additional costs of ¥50-100 per ton, which is being passed through to construction and manufacturing. Cement producers are investing heavily in low-carbon alternatives, including carbon capture and storage (CCS) and alternative cementitious materials.

BOTTLENECKS: The biggest bottleneck is the lack of a robust carbon offset market. China’s Certified Emission Reduction (CCER) program, which allows companies to offset a portion of their emissions by investing in renewable energy or forestry projects, was suspended in 2024 and has not been fully relaunched. This limits the supply of offsets and puts upward pressure on allowance prices.

International Implications

China’s carbon market expansion has significant implications for international trade. The European Union’s Carbon Border Adjustment Mechanism (CBAM), which imposes tariffs on imports from countries without comparable carbon pricing, is a major driver of China’s carbon market expansion. As China’s carbon prices rise, the CBAM tariff burden on Chinese exports to Europe decreases, creating a competitive advantage for Chinese producers with lower carbon intensity.

However, a Bloomberg investigation in June 2026 raised concerns about the quality of Chinese carbon credits, finding that some credits in the CCER program were based on questionable baselines. This has led to increased scrutiny from European regulators and could undermine the credibility of China’s carbon market.

CII Analysis

China’s carbon market is entering a new phase of maturity. The price surge and market expansion signal that the government is serious about using market mechanisms to reduce emissions. For investors, the key opportunities are in: (1) carbon-intensive companies that are investing in low-carbon technologies (steel, cement, aluminum); (2) carbon capture and storage (CCS) technology providers; (3) renewable energy companies that generate carbon credits; and (4) carbon trading platforms and financial intermediaries. The ¥624 billion market is expected to double in size by 2028 as more industries are covered.

Sources

1. ClearBlue Markets — China’s Carbon Market Hits the Reset Button for 2026
2. Bloomberg — Dubious Chinese Carbon Credits Expose European Market’s Flaws
3. Climate Action Tracker — China Climate Policy Analysis
4. Reuters — China expands carbon market to steel, cement
5. IEA — China Energy Policy Review 2026