How to Read China's Carbon Market as an Energy Company: Who Is Covered, How a Power Plant's Allowance Is Computed, the 2026 Reporting and Surrender Calendar, Offsets, Penalties, and What Changes by 2027 and 2030

Short answer. For an energy company the national carbon market is a compliance obligation on each listed key emitting unit: a free allowance computed per generating unit from generation and heat output against a benchmark and summed for the key emitting unit, a verified emissions figure, and a surrender of allowances equal to that figure by 31 December for the previous year. The rules are set by a State Council regulation in force since May 2024, a ministry order from 2021, an annual allocation plan and an annual work notice. The direction of travel — total-quantity control, paid allocation, more sectors — is stated in a 2025 central policy document. This guide reads those documents in the order a compliance manager needs them and quotes MEE's own figures for price and compliance; it forecasts nothing.

1. Am I a key emitting unit?

The Interim Regulation on Carbon Emissions Trading (State Council Order No. 775) was adopted on 5 January 2024, promulgated on 25 January 2024 and took effect on 1 May 2024; it applies to trading and related activities in the national market under the supervision of the State Council ecology-and-environment department. The gases and sectors covered are proposed by that department with NDRC and others and approved by the State Council; provincial authorities draw up annual lists of key emitting units against national conditions; and the annual allowance total and allocation plan is set nationally, with allowances allocated free of charge and a combination of free and paid allocation to be introduced gradually.

The threshold comes from MEE's Measures for the Administration of Carbon Emissions Trading (Trial) (MEE Order No. 19, in force 1 February 2021): a key emitting unit is one in a covered sector with annual emissions of 26,000 tCO2e or more. MEE's February 2026 work notice applies the same 26,000 tCO2e direct-emissions test to power, steel, cement and aluminium units for the 2027 lists, to be published by 31 October 2026. Coverage has widened: MEE's March 2025 work plan brings steel, cement and aluminium smelting into the market in two stages, adding about 1,500 key emitting units and about 3 billion tCO2e, with CO2 for steel and cement and CO2, CF4 and C2F6 for aluminium. The 2026 notice also brings petrochemicals, chemicals, flat glass, copper smelting, paper and civil aviation enterprises at 26,000 tCO2e into annual emissions-report management, without allowance obligations. An energy group with captive plants in those sectors therefore has reporting work even where it has no surrender.

2. How a power unit's allowance is computed

The 2025–2026 allocation plan (国环规气候〔2026〕1号, issued 1 September 2026) covers power-sector units for 2025 and 2026 and steel, cement and aluminium units for 2026; power-sector allowances are calculated per generating unit by the intensity-benchmark method — unit allowance = generation allowance + heat allowance, with generation allowance = generation × benchmark × peak-regulation correction factor for conventional coal units — while the three new sectors use an intensity-coefficient method; the power sector covers direct CO2 from fossil-fuel combustion and none of the sectors covers indirect emissions from purchased electricity or heat.

The plan says conventional coal units take the peak-regulation correction factor from Table 2 while other categories have a factor of 1; its Table 1 sets generation benchmarks (tCO2/MWh) of 0.7902 (2025) and 0.7894 (2026) for conventional coal units above the 300 MW class, 0.8017 and 0.7985 for conventional coal units at or below the 300 MW class, 0.8162 and 0.8080 for unconventional coal units (including circulating fluidised bed), and 0.3288 for gas units in both years; heat benchmarks (tCO2/GJ) are 0.1027 (2025) and 0.1021 (2026) for coal and 0.0533 for gas; the Table 2 factor is 1 at load factor ≥50% and rises by formula below 50%. Three readings: the benchmark tightens from 2025 to 2026 for coal but not for gas; a conventional coal unit running below 50% load gets a correction above 1, while other unit categories have a factor of 1; and a unit's position is decided by its own intensity against the benchmark — the plan states that the lower the carbon emission per unit of product, the higher the allowance surplus rate.

The plan caps a key emitting unit's (not an individual generating unit's) compliance gap at 20%: if a key emitting unit's initial allowance is less than 80% of its verified emissions, allowances are topped up to 80% of verified emissions. The Regulation adds that a key emitting unit that consumes non-fossil electricity has its allowances and emissions adjusted accordingly under national rules.

3. What I report, and when

The Regulation requires key emitting units to control emissions, run a data-quality control plan, use verified or calibrated metering instruments, compile an annual emissions report for the previous year and submit it to the provincial authority, which verifies it (feeding back within 7 working days of completing verification and publishing results); units must then surrender allowances in full by the deadline set nationally. The 2025 central opinions call for monthly evidence-filing of key parameters.

For power plants the parameters are those of MEE's 2022 revision of the power-sector accounting guide. MEE's December 2022 Q&A says the revision replaced the hard-to-measure "electricity supplied" with directly metered "electricity generated", cut the formulas used in reporting and verification from 27 to 12, named eight key parameters that most affect emissions and allowances — fuel consumption, net calorific value, elemental carbon content, purchased electricity, generation, heat supplied, operating hours and load factor — for routine supervision and annual verification, and set nine report-only auxiliary parameters.

MEE's February 2026 work notice sets the 2026 calendar: monthly data evidence-filing within 40 days after each month; 2025 emissions reports by 31 March 2026; power-sector verification by 30 June and the three new sectors by 31 July; 2025 pre-allocation to steel, cement and aluminium by 10 April and to power by 30 June; final 2025 allocation by 30 September; full surrender of 2025 allowances by 31 December 2026; and 2027 lists published by 31 October 2026. Under the plan, pre-allocation is in principle 50% of the previous year's verified emissions (provinces may lower it), and surrender of allowances equal to verified emissions is due by 31 December each year for the previous year. The same two-step pattern — pre-allocation, then final allocation after verification — ran for the 2023 and 2024 power-sector years under MEE's October 2024 notice, with the registry completing issuance within 10 working days of receiving the signed provincial tables.

4. What I may surrender besides this year's allowances

Vintages matter. Under the 2025–2026 plan, 2019–2024 allowances cannot be used for 2025 or later compliance, while 2025 and 2026 allowances may be used for 2025, 2026 and later years; CCERs registered after the voluntary market's launch on 22 January 2024 may be used to offset 2025 and 2026 surrender; and allowances from other sectors' key emitting units may be used. MEE Order No. 19 allows key emitting units to use national certified voluntary emission reductions to offset up to 5% of the allowances due. The 2025 opinions say the CCER offset ratio is to be set reasonably.

The CCER rules are in the Measures for Voluntary GHG Emission Reduction Trading (Trial) (MEE/SAMR Order No. 31, adopted 15 September 2023): registered projects must be real, unique and additional, within MEE-published methodologies and started after 8 November 2012; projects with a legal reduction obligation or under national or local allowance management may not register; registered reductions are "certified voluntary emission reductions" in tCO2e; traders need registry and trading-system accounts; and CCERs used to offset national or local ETS surrender, event carbon neutrality or corporate emissions must be cancelled in the registry. An energy company's own renewable projects are therefore eligible for CCER registration only if they are additional and not already under allowance management.

Green certificates are a separate instrument. The 2025 Green Certificate Opinions (发改能源〔2025〕262号) call for effective linkage between green certificates and the carbon-emission accounting of key-sector enterprises and product carbon-footprint accounting standards, and for green-power consumption requirements to be written into the energy-saving and carbon-reduction management rules for key energy-using and emitting units. The 2025 central opinions likewise call for policy coordination between the national carbon market and green electricity and green certificate mechanisms. Neither text says a green certificate offsets a surrender obligation.

5. What the market has done

MEE's National Carbon Market Development Report (2025) says that in 2024 the market ran 242 trading days, average daily allowance volume rose 43.55% on the previous compliance period, annual volume was 189 million tonnes (79% in Q4) and annual turnover 18.114 billion yuan, a record; cumulative volume to end-August 2025 was 696 million tonnes and turnover 47.826 billion yuan. The 2024 composite closing price ranged 69–106 yuan/t, ended the year at 97.49 yuan/t (up 103.10% on the 2021 opening price and 22.75% on end-2023), and that after a post-deadline fall in volume and price, trading recovered from March 2025 with Q2 2025 volume and turnover up 140% and 87% year on year, the composite closing price at end-August 2025 being 69.30 yuan/t. The report says the market is designed for a roughly balanced sector allowance position with a slight shortfall: for the 2023 compliance year 5.215 billion allowances were issued against 5.244 billion tonnes of verified emissions (a 29 million tonne, 0.55% gap); 58 units in 18 regions used 6.4727 million CCERs for offset; the 2023-year surrender completion rate was 99.98% by end-2024, with 28 provincial regions at 100% and only 4 units failing to surrender in full on time.

Trading may be by negotiated transfer, one-way bidding or other approved spot methods. The 2025 opinions support banks in carbon-pledge finance and the gradual admission of qualifying financial institutions and other non-compliance participants.

6. What it costs to get it wrong

The Regulation's penalties include: for failing to surrender allowances as required, a fine of 5 to 10 times the average market price in the month before the surrender deadline on the unsurrendered amount, and on refusal to correct, an equal deduction from next year's allowances and possible production suspension; for data fraud, confiscation of gains plus fines of 5–10 times the gains (or, where there are no gains or gains below 500,000 yuan, 500,000–2,000,000 yuan), fines on responsible persons and, on refusal, a 50–100% cut in next year's allowances; for market manipulation, fines of 1–10 times gains (or, where there are no gains or gains below 500,000 yuan, 500,000–5,000,000 yuan). One rule has since moved: the 2025–2026 allocation plan's data-table notes state that under the Ecological Environment Code the authority no longer makes new allowance-deduction decisions for failure to surrender in full, that deduction decisions made before the Code took effect continue to be executed, and that units refusing to correct fraud remain subject to the Regulation's equal-quantity deduction. The Code itself was not retrieved for this guide.

7. What changes by 2027 and 2030

The CPC Central Committee / State Council General Offices' Opinions (dated 24 May 2025, released 25 August 2025) set targets: by 2027 the ETS basically covers the main industrial emitting sectors and the voluntary market covers key fields; by 2030 an ETS based on total-quantity control with free-plus-paid allocation is basically built; allocation is to move gradually from intensity control to total control, with total-quantity control applied first by 2027 to sectors whose emissions are relatively stable, a rising share of paid allocation, an allowance reserve and market-adjustment mechanism, and a reasonable CCER offset ratio. No new local or regional carbon markets will be built, with evaluation and exit mechanisms for the pilots; local markets established before the Regulation must improve their systems with reference to it. For the new sectors, the 2025 work plan runs a start-up phase (2024–2026 compliance years) with 2024 allowances equal to verified emissions and 2025–2026 allowances on an intensity basis with roughly balanced sector surplus and deficit, then a deepening phase from 2027 with a gradually tightening sector allowance total. The 2025–2026 plan says its free, intensity-based allocation is meant to lay the ground for later free-plus-paid allocation.

Reading order

Scope limits

National texts only. The 2023/2024 power-sector plan and the 2024/2025 steel-cement-aluminium plan PDFs were not downloaded; the 2022 accounting guide is cited through MEE's Q&A; the Ecological Environment Code is known here only through the allocation plan's notes. No provincial list, company position or forecast is given. Not trading, legal or compliance advice.