China, the world’s largest greenhouse gas emitter, has announced a historic shift in policy that could alter the course of international climate initiatives. Beijing will abandon its earlier reliance on more lenient intensity-based regulations, and China plans absolute emission caps on heavy industry like steel, cement, and aluminum in 2027. China, which contributes around one-third of global emissions, will implement fixed pollution ceilings for the first time.

The largest carbon market in the world at present is China’s carbon emissions trading scheme (ETS), which has drawn criticism for its perceived ineffectiveness due to the massive free allowances given to businesses. Beijing’s intention to gradually extend ETS coverage to further industries, including chemicals, petrochemicals, papermaking, and domestic aviation, while simultaneously tightening restrictions, is indicated by the new policy.

Why Is China Moving from Intensity-Based Rules to Absolute Emission Caps?

Carbon intensity objectives, or restricting emissions per unit of GDP growth, were at the heart of China’s emissions policies for many years. Because of the flexibility this method offered the industry, overall emissions were allowed to increase as long as efficiency increased. Although helpful during a time of strong economic expansion, it was unable to guarantee a complete reduction in emissions.

Despite production increases, several industries are expected to have reached their fixed ceilings by 2027. Two truths are reflected in this change:

• Industrial emissions have plateaued: Analysts believe that industries such as steel, cement, and aluminum have likely reached their peak emissions and are therefore good candidates for limitations.
• Credibility worldwide: As China’s climate policies come under increased scrutiny, absolute caps show a firm commitment to achieving its 2060 carbon neutrality goal and its 2030 peak emissions guarantee.
• Increased ETS credibility: A mature carbon market with genuine scarcity value in allowances, which incentivizes industries to reduce emissions or pay higher prices, requires fixed ceilings.

This change is also consistent with international carbon markets, such as the EU Emissions Trading System, where absolute caps are the standard.

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Which Industries Will Be First Affected by the 2027 Caps?

China plans absolute emission caps on heavy industry gradually. Since steel, cement, and aluminum are carbon-intensive, have relatively consistent output, and collectively account for around 60% of national industrial emissions, they are likely to be included in the first wave of decarbonization efforts.

Other sectors anticipated to follow are:

• Petrochemicals and chemicals
• Papermaking
• Domestic aviation

The comparison of these industries’ carbon intensity and possible inclusion timetable is displayed in the table below:

Regulators and industry will have sufficient time to establish monitoring, reporting, and verification (MRV) systems, thanks to this phased rollout.

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Will the Caps Actually Reduce Emissions in Practice?

China plans absolute emission caps on heavy industry, and the key question is whether these caps would have a substantial impact on emissions or if they will only serve as symbolic measures. Several factors complicate the prognosis:

• Coal dependency: With coal commissioning at a nine-year high in 2025, China continues to approve new coal-fired power projects. A heavy reliance on coal might counteract progress under the ETS, even with limitations.
• Free allowances: According to experts, China’s ETS continues to distribute a significant number of free credits, which reduces the motivation to reduce emissions. Caps may have limited bite if the allowance distribution is not tightened.
• Weak carbon pricing: China’s carbon pricing remains too low to encourage the widespread adoption of abatement technologies. ETS pricing by itself might not have as significant an effect on lowering emissions as industrial policies, such as capacity limits.
• Transition to renewables: The caps are intended to complement the swift growth of renewable energy sources. Caps will encourage sectors to switch to alternative fuels and increase efficiency if renewable energy sources grow more quickly.

The efficacy of absolute caps, which essentially serve as a regulatory backbone, would rely on enforcement, allowance distribution, and supplementary industrial strategies.

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How Does This Affect Global Climate Action?

China plans absolute emission caps on heavy industry, and as China is the world’s largest emitter, its decision has worldwide ramifications:

• Increasing credibility: China is bringing itself closer to international climate standards by implementing absolute caps, which may improve international negotiations.
• Pressure on other economies: As emissions rise, developing countries may face increased international pressure to reduce their own emissions.
• Growth of the carbon market: China’s ETS may eventually serve as a template for other Asian economies, connecting them to international carbon markets.

The strategy also highlights the tension between China’s climate objectives and its energy security needs, which continue to prioritize coal as a source of energy. The outcome will mostly depend on how swiftly Beijing stops the spread of fossil fuels and how firmly it enforces the limitations.

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Frequently Asked Questions (FAQs)

Q1. What is the difference between carbon intensity and absolute emission caps?

Emissions per unit of output, such as per GDP or per ton of steel, are measured by carbon intensity. Absolute caps guarantee reductions even in the event of an increase in output by setting a predetermined ceiling on overall emissions.

Q2. Why are steel, cement, and aluminum prioritized?

China’s ETS already covers these sectors, has a substantial carbon footprint, and has relatively steady demand. By 2027, they are thought to be prepared for absolute caps.

Q3. Could absolute caps raise production costs for industries?

Yes, industries that exceed their allotment will have to purchase additional credits, which may result in higher prices. But this also encourages new ideas, increased productivity, and the use of greener technologies.

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