Can China’s ETS Push the World Toward a Green Future?

Since its launch in 2021, China’s National Emissions Trading System (ETS) has grown into the world’s largest carbon market by volume, covering around 5.2 billion tons of CO₂ annually—over 40% of the country’s total emissions. With the power sector as its starting point, the ETS now includes more than 2,200 power plants that emit over 26,000 tons of CO₂ each year, surpassing the scale of the European Union’s ETS. The scale of this system highlights China’s potential influence in global carbon trading.

The ETS was established to create a market-based mechanism for emissions reductions by capping total emissions and allowing companies to trade allowances. In 2023, the average carbon price in the Chinese market was around 68 yuan per ton (approximately $8 USD)—much lower than the European Union ETS, where prices hovered near $85 per ton. While this price gap has prompted skepticism about the ETS’s impact, many observers view China’s efforts as laying critical groundwork for a more robust carbon pricing regime in the future.

China’s energy transition is also being driven by unprecedented growth in renewables. The country is projected to  deliver 60% of new renewable capacity additions globally by 2028. In 2024 alone, China added a record 429 gigawatts (GW) of new power capacity to its grid—a 21% year-over-year increase. Notably, solar and wind accounted for 356.5 GW, or 83% of that total. These developments surpass national targets of peaking carbon emissions before 2030 and carbon neutrality by 2060.

Still, this progress is accompanied by complexities. In 2022, China approved 106 gigawatts of new coal-fired power capacity, raising concerns about the consistency of its climate strategy. The coexistence of aggressive renewable expansion and continued coal investment highlights the country’s balancing act between environmental targets and economic growth.

Compliance has emerged as a key challenge for China’s ETS. A report from China’s Ministry of Ecology and Environment revealed cases of emissions fraud involving third-party verifiers responsible for auditing emissions data from power companies. These findings underscore the need for stronger enforcement and more robust monitoring systems. Looking ahead, the planned inclusion of high-emitting sectors—such as steel, cement, and aluminum—by 2026 could expand the system’s reach, though its effectiveness will ultimately hinge on sound policy design and implementation.

Despite its challenges, China’s ETS remains a nascent system with considerable potential. While the current carbon price is low, it has been rising steadily as the market matures and regulatory mechanisms strengthen.

Moreover, the ETS has broader geopolitical implications. By building a comprehensive national carbon market, China is positioning itself to help shape global norms for carbon pricing and climate governance. Its engagement in promoting carbon trading frameworks through international trade and investment agreements could have ripple effects on how other countries design and implement their own systems.

China’s ETS represents a significant effort to integrate market mechanisms into national climate policy. Its future effectiveness will depend on continued expansion, stronger enforcement, and alignment with other environmental and energy policies. As China seeks to balance economic growth with climate objectives, the evolution of its carbon market will be closely watched by policymakers and stakeholders around the world.

Rachel Zhang

Undergraduate Seminar Fellow

Rachel Zhang is a fourth-year student at Wharton, studying business economics and public policy with a minor in fine arts. Zhang is also a 2025 Undergraduate Fellow.