By the end of 2025, the steel, cement, and aluminum sectors will complete their first compliance cycle under China's mandatory carbon emission trading scheme (national ETS). Compared with previous phases, the latest enforcement framework introduces real-time big data monitoring and significantly tougher penalties - including fines of up to 10 times of the uncovered emissions (previously capped at 30,000 yuan), credit blacklisting, and production halts for rectification - substantially raising compliance pressure across affected industries.
[ Industry Implications ]
- Accelerating Low-Carbon Technology Adoption
The current period of relatively ample carbon emission allowance (CEA) supply, expected to last until 2027, provides a temporary buffer for companies - but also underscores the need to prepare for a more restrictive carbon emission regime.
In the steel sector, for example, switching from the conventional blast furnace-basic oxygen furnace process to electric arc furnaces (EAF) can cut emissions by 1.64 tonnes of carbon dioxide per tonne of steel production. Based on the national average CEA price of 68.54 yuan/tonne from January to April 2025, this translates to a carbon cost saving of roughly 112 yuan per tonne of EAF-produced steel. However, EAF production in China remains 100–200 yuan/tonne more expensive than conventional methods, implying that CEA prices would need to exceed 122 yuan/tonne carbon dioxide to meaningfully incentivize the transition.
- Cost Pass-Through to Support Industrial Prices
Carbon emission costs are expected to be increasingly reflected in product prices. Ex-factory prices for ferrous metal products have declined year-on-year for 36 consecutive months. Higher carbon emission costs could help lift producer prices, easing deflationary pressures in China's industrial sector.
- Strengthening EU Carbon Tariff Readiness:
Inclusion in China's national ETS positions companies to better manage carbon tariff exposure on steel, cement, and aluminum exports to the EU, where such tariffs will take effect from 2026.
Petrochemicals Outlook: Petcoke Demand Faces Headwinds
- The growing adoption of technologies such as inert anodes is expected to weigh on demand for petroleum coke, which accounted for 28.73 million tonnes, or 65% of China's prebaked anode market in 2024.
- The petrochemical sector is also likely to accelerate preparations for the inclusion in the national ETS over the next two years (2027-2028), at which point it will face stricter and more frequent monitoring and reporting obligations.
Three Strategic Priorities for Early Movers
- Advancing Low-Carbon Technologies: Steel and aluminum producers should leverage the current allowance buffer to accelerate investment in hydrogen metallurgy, next-generation electrolyzers, and other decarbonization technologies, while the cement sector should prioritize alternative fuel development.
- Building Carbon Market Services: Opportunities are emerging across CCUS project development, carbon asset management platforms (including carbon accounting SaaS tools), and independent verification services.
- Strengthening Data Infrastructure: Companies should establish MRV monitoring systems and specialized carbon management teams to mitigate regulatory risks associated with data accuracy and reporting gaps.
The full report provides an in-depth analysis of the evolving compliance landscape for China's national ETS in 2025. Subscribe to access:
- Navigating New Compliance Challenges in 2025: Harnessing Big Data for More Proactive and Targeted Carbon Emission Management
- China's National ETS: A Comparative Review of the Evolving Regulatory Framework
- Industry Impact Assessment: What the Compliance Shifts Mean for the Steel, Cement, and Aluminum Sectors
- 2025 Compliance Roadmap for China's National ETS
The above content is the major conclusions and highlights extracted from China (Energy Transition) Policy Perspective. To get detailed full text, send an email to glconsulting@mysteel.com.
