Carbon is now being explicitly priced: A comprehensive explanation of the principles, rules, and 30-year global博弈 surrounding carbon trading

1. Although export enterprises do not directly file declarations, they must provide EU importers with information on their products’ embedded carbon emissions, third-party verification reports, and carbon costs already paid in the country of origin—cooperation level directly determines customs clearance efficiency and associated costs; 2. A product’s own carbon intensity directly determines additional compliance costs; 3. Starting in 2028, when downstream products are included in the scope, compliance responsibility will extend from upstream raw materials to the entire industrial value chain; downstream finished-goods manufacturers must establish traceability mechanisms. It should be noted that China explicitly opposes certain aspects of the EU’s Carbon Border Adjustment Mechanism (CBAM). The Ministry of Commerce pointed out that the EU has set significantly inflated default values for the carbon intensity of Chinese products—and plans to raise these defaults annually over the next three years—contrary to China’s current actual conditions, thereby constituting unfair and discriminatory treatment. Such practices allegedly violate WTO principles of 'most-favoured-nation treatment' and 'national treatment', and run counter to the 'common but differentiated responsibilities' principle established under the United Nations Framework Convention on Climate Change (UNFCCC). China stated it would resolutely adopt necessary measures in response to such unjust trade restrictions. From a longer-term perspective, CBAM’s true impact may lie less in tariffs themselves than in its transformation of 'carbon' into a condition for market access. For the first time, enterprises’ carbon management capability has become a direct component of export competitiveness. My Three Judgments Having laid out these facts, I’d like to share three personal observations. First, the most elegant feature of carbon markets is that they do not tell you 'how to do it'—only 'how much you must achieve'. The government sets an overall cap; enterprises choose their own pathways—either reducing emissions internally or purchasing allowances. This design delegates the extremely complex question of 'what is the cheapest way to reduce emissions?' to those who best understand their own cost structures, enabling decentralized problem-solving. It makes no assumption that governments are smarter than enterprises—a humility that is precisely what makes this mechanism intelligent. Second, every fluctuation in carbon prices reflects a real-world change being priced in. The drop in carbon prices to ¥51.2 in 2025 was not 'market failure', but rather the natural result of surging wind and solar installations and falling clean energy costs—making internal emission reductions more economical for enterprises. The rebound to ¥74.63 by end-2025 reflected genuine allowance demand as the compliance deadline approached. Watching carbon prices is, in essence, watching a nation’s energy structure and industrial transition progress. That is why Professor Zhang Xiliang of Tsinghua University notes that, as allocation caps tighten across sectors such as steel, cement, and aluminum smelting, carbon prices will 'converge toward the range reflecting true abatement costs'—suggesting current prices may still fall short of where they ought to be. Third, for ordinary people, the carbon market’s true signal lies not in price—but in 'direction'. Allowances are shifting from free allocation to paid allocation; regulated sectors are expanding from four to full industrial coverage; covered greenhouse gases are broadening from one to three types; and future integration with cross-border carbon trading and CBAM compliance is imminent. Collectively, these shifts mean: Carbon is transitioning from an 'externality' into a line item on corporate balance sheets. For enterprises, mapping their emissions baseline and proactively planning decarbonization pathways has shifted from 'prudent foresight' to an urgently narrowing window. For individuals, understanding this mechanism at least enables you to grasp what truly operates behind terms like 'carbon peak', 'carbon neutrality', and 'carbon tariffs' when you hear them.

The Chinese government has formally recognized 'cross-border carbon trading'!

(1) Progress on Article 6.4 of the Paris Agreement, as mentioned in my June 2024 article 'Updates to the Dual-Carbon and ESG Knowledge System': The 60th session of the UNFCCC Subsidiary Bodies (SB60), held in Bonn, Germany, adopted decisions regarding whether carbon-reduction projects qualify under Article 6 of the Paris Agreement: Prior to 2028, the Paris Agreement explicitly does not recognize emission reductions generated by 'renewable energy' or 'energy efficiency and emission reduction' projects; after 2028, such projects’ carbon asset attributes will likely still not be recognized under the Paris Agreement. Only projects achieving 'net-negative emissions'—such as forestry carbon sequestration and carbon capture—will be accepted. The SB60 decision implies that carbon assets generated domestically by energy-efficiency improvements, renewable energy deployment, or enhanced forest conservation will not be acknowledged by international carbon markets operating under the Paris Agreement. (2) Cross-Border Trading in International Voluntary Carbon Markets Numerous internationally tradable voluntary carbon markets exist, including prominent schemes such as VCS and GS, alongside emerging international voluntary carbon markets in Singapore. These markets are NGO-led, and their credibility hinges on the influence and reputation of the respective NGOs. A wide variety of carbon-reduction project types operate within these international voluntary carbon markets. Some so-called 'high-quality carbon credits' may eventually gain recognition under the Paris Agreement, while many others will not. Transparency in these international voluntary carbon markets remains low—particularly because buyers are permitted to remain anonymous. Consequently, for many projects, it remains unclear which companies purchased their emission reductions, or for what reasons. (3) MIIT’s Cross-Border Carbon Trading Initiative Historical international carbon trading mechanisms (e.g., CDM, UER) involved developing carbon-reduction projects in China and selling the resulting emission reductions to enterprises in developed countries—primarily in the EU. By contrast, the cross-border carbon trading proposed in MIIT’s Guiding Opinions on Zero-Carbon Factories involves Chinese enterprises purchasing emission reductions generated abroad. Although many implementation details remain uncertain, this initiative at least opens a channel for domestic enterprises to legally and compliantly spend funds overseas to acquire foreign carbon reductions—potentially enabling related capital flows to exit China lawfully in the future. (4) The EU’s Stance on International Carbon Credits The EU government strongly opposes international carbon credits. This is because the EU’s climate policy carbon markets (EU ETS, CBAM) constitute a major source of fiscal revenue for the EU government—comparable in significance to China’s land finance system. International carbon credits threaten EU fiscal revenues much as small-property-rights housing undermines China’s land finance—both erode government revenue streams. (Hence, 'responding to EU green trade barriers' cannot serve as a legitimate underlying transaction rationale for cross-border carbon trading.) 3. Development of China’s 'Cross-Border Carbon Trading' Policy The Chinese government recognizes cross-border carbon trading and is actively yet prudently advancing related work. (1) Policy Framework · The Interim Regulations on Carbon Emission Allowance Trading explicitly stipulate: 'The State shall strengthen international cooperation and exchanges in the field of carbon emission allowance trading.' · The General Office of the CPC Central Committee and the General Office of the State Council’s 'Opinions on Promoting Green and Low-Carbon Transformation and Strengthening National Carbon Market Construction' propose: 'Actively participate in formulating rules for carbon market mechanisms under the Paris Agreement on climate change, and promote a fair global green and low-carbon transition.'

China Accelerates Cross-Border Carbon Trading System Amid Supply Shortage

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China is advancing cross-border carbon trading frameworks, prioritizing Belt and Road nations for credit procurement. Major industrial clients like Sinopec and Kao Group show increasing interest in international carbon credits.

caixin

2026-10-20

China Accelerates Cross-Border Carbon Trading System Amid Supply Shortage

China Accelerates Cross-Border Carbon Trading System Amid Supply Shortage

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