Starting in 2026, when the 15th Five-Year Plan begins, the petrochemical industry will face two binding constraints. On the one hand, as a key sector that accounts for about 12%-13% of national carbon emissions, it needs to complete energy-saving and emission-reduction tasks of around 40 million tonnes of standard coal before 2030, which is about 40% of the national target. On the other hand, China's primary refining capacity already peaked in 2024 with 57 million tonnes, and it is expected that 60 million tonnes of inefficient capacity will be eliminated over the next five years.
With decarbonization and capacity cuts advancing in parallel, the industry landscape will be reshaped - how should enterprises respond?
1 | Cutting capacity: who will be forced out of the 60 million-tonne elimination list?
Source: Compiled by GL Consulting
During the 14th Five-Year Plan period, the phase-out of inefficient capacity in the petrochemical industry has already achieved initial results. Under the 15th Five-Year Plan, the focus will shift to targeted capacity reduction plus optimized layout. Policies will no longer adopt a "one-size-fits-all" approach, but will classify treatment by type, scale, and technological level.
The elimination targets are clearer. The planned 60 million tonnes to be withdrawn in 2026-2030 will mainly focus on three categories:
- Small-scale units with capacity less than 2 million tonnes;
- Independent refineries that have been in operation for more than 30 years and have long been inefficient.
Local implementation rules are becoming stricter: provinces such as Jiangsu have taken the lead in expanding the scope of restricted projects, and the technical transformation threshold for small and medium-sized enterprises has risen significantly. For details, please refer to the list of local restricted projects under the 15th Five-Year Plan in the report.
New capacity has almost come to a standstill: the construction of new conventional refining capacity is strictly prohibited, and project approvals for ethylene, PX and other products have become tighter; only projects involving green capacity replacement or the application of new technologies can obtain approval (For the detailed filing list of new projects, please contact at glconsulting@mysteel.com.) The industry has entered a phase defined by stock-driven competition, with scale growth no longer serving as the main strategic direction.
For enterprises, inefficient capacity that cannot be upgraded in time will be forced to exit; facilities with upgrade potential can be retained through technical transformation and take over the market share released by the exit of backward capacity.
2 | Decarbonization: which pathway is the fastest and most cost-effective?
Source: Compiled by GL Consulting
Under the 15th Five-Year Plan, decarbonization targets for the petrochemical industry clearly focus on emission reduction in refining and chemical production, centering on "technological breakthroughs + policy dividends". But the timelines and economic viability differ significantly across pathways.
Priority 1: Energy-saving retrofits on the production side - fast results, certain returns
Mature technologies such as heat pumps, waste-heat recovery, and process energy-efficiency optimization that require relatively controllable investment, making them the primary choice for delivering energy-saving outcomes in the short term.
Priority 2: Green electricity / green hydrogen substitution – core direction in the medium term
Green electricity will become the main driver of energy growth over the next five years, providing ample supply for energy substitution in petrochemical enterprises (a detailed outlook on electrification levels and energy consumption during the 15th Five-Year Plan period is provided in the report). Green hydrogen has already entered the pilot phase and obtained credit support (specific requirements for pilot applications and subsidy ratios are provided in the report). Cost parity is expected to be reached around 2030-2035, as the market consensus.
Priority 3: CCUS / CCU - high long-term value but complex pathway
Technology validation has been completed, and from 2025 the mechanism falls within the scope of central-budget support, allowing demonstration projects to obtain subsidies. After eight key industries are included in the national carbon market in 2027, rising carbon prices will improve CCUS economics. Value chains can also be extended through synthetic methanol, building materials, and other applications.
Source: Compiled by GL Consulting
In addition, zero-carbon industrial parks have been listed as a policy priority. Enterprises moving into such parks can enjoy exemptions from energy-saving review, fiscal subsidies, and tax incentives. (Detailed entry requirements and subsidy standards for zero-carbon parks are provided in the report).
During the 15th Five-Year Plan, the target is to build about 100 national-level zero-carbon parks, which will become important platforms for enterprises to obtain policy dividends and quickly land pilot projects. (Detailed national policies on zero-carbon parks are provided in the report.)
3 | How should enterprises of different sizes capture subsidies and avoid risks?
- Leading enterprises: it's helpful to connect with capacity-replacement and integration opportunities. It's a trend to invest mainly in green hydrogen, CCUS, and zero-carbon park construction. They could gain credit and fiscal support through demonstration projects, and take the lead in building green supply chains.
- Small and medium-sized enterprises: if they fall into the high-risk group of "small capacity / old units," they should prioritize connecting with capacity-replacement schemes or transition toward high value-added supporting segments ,such as new materials and fine chemicals. They may consider moving into zero-carbon parks to share infrastructure and policy dividends, or focus on niche tracks such as energy-saving equipment and solid-waste recycling.
- Foreign-funded enterprises: They can use the Hainan Free Trade Port or local pilot zones to lay out green technological transformation. They can also jointly apply for pilot projects with domestic enterprises. In order to reduce future export risks under CBAM and other international rules, they may connect to China–EU mutual recognition of carbon footprints.
During the 15th Five-Year Plan, decarbonization and capacity reduction are not simply about shrinking capacity or cutting indicators, but about a redistribution of industrial structure and competitiveness. The short-term challenge lies in investment and compliance thresholds, which are particularly a matter of survival pressure for small and medium-sized enterprises. However, the long-term opportunities are clearer. Industry concentration will rise after 60 million tonnes of inefficient capacity exits. Enterprises with technological leadership and strong policy alignment will gain the upper hand. The industry will move from "scale competition" to "quality competition."
The full report dives deeper into:
- Specific list and timeline for the 60 million tonnes of eliminated capacity;
- Subsidy and application procedures for CCUS and green hydrogen projects;
- Entry requirements and tax incentives for zero-carbon parks;
- Practical recommendations on enterprise upgrading and financing.
The above content is the major conclusions and highlights extracted from China (Energy Transition) Policy Perspective produced by GL Consulting. Click the hyperlinks for the full text or email glconsulting@mysteel.com.
