China ETS Allowance Allocation Proposal Targets Power And Heavy Industry

China ETS allowance allocation rules for power and heavy industry are under consultation after the Ministry of Ecology and Environment published a draft plan online on 27 July 2026. The proposal covers power generation for 2025 and 2026, and steel, cement and aluminium smelting for 2026. Comments close on 5 August, leaving only nine days from online publication.

The plan could affect compliance costs for some of the world's most important material suppliers. Manufacturers buying Chinese steel, cement, aluminium or electricity-intensive components should expect carbon performance to influence supplier economics and investment decisions.

Free Allowances Remain Linked To Carbon Intensity

The draft continues free allocation while refining performance incentives. Power-sector allowances use output and heat supplied, multiplied by category benchmarks. Proposed 2026 electricity benchmarks tighten for conventional coal units above and below 300 MW and for unconventional coal units, while the gas benchmark remains unchanged.

For steel, cement clinker and aluminium electrolysis, China ETS allowance allocation would use verified emissions adjusted by a carbon-intensity coefficient. Facilities performing better than the industry balance value receive a positive adjustment, while poorer performers receive less. The coefficient is capped at plus or minus 3% when performance differs from the balance value by at least 20%.

Coverage Includes Direct Industrial Greenhouse Gases

Power, steel and cement coverage focuses on direct carbon dioxide emissions. Aluminium smelting also includes carbon tetrafluoride and hexafluoroethane, converted to carbon dioxide equivalent. Indirect emissions from purchased electricity or heat are outside this allocation calculation.

Pre-allocation would normally equal 50% of the previous year's verified emissions, although provincial authorities could reduce the proportion to manage compliance risk. Special rules cover new, closed and low-emitting installations, and certain alternative fuels or processes.

Global Supply Chains Should Model Carbon-Cost Scenarios

China ETS allowance allocation is not yet the final allocation method. Covered operators should test allowance positions under the proposed benchmarks and coefficients, validate production and emissions records, and comment before 5 August. Buyers should ask strategic suppliers how China ETS allowance allocation could affect prices, decarbonisation projects and low-carbon material claims.