China leads the world in almost all zero-emissions industries of the future, be that solar, wind, hydroelectricity, smart grids, very fast rail, batteries, electric vehicles and nuclear. China’s leadership extends to the global upstream mining and processing of critical minerals and strategic metals supply chains that enable these cleantech industries. China leads the world when it comes to research and development, manufacturing, domestic deployments, exports and increasingly, in outbound direct foreign investment across all of these cleantech sectors.

China recently released its 15th Five-Year Plan (2026-30), providing a clear strategic direction for industrial and economic development. The planning documents devoted an entire section to accelerating the green transition across all sectors. It also said China will follow the principle that lucid waters and lush mountains are invaluable assets, while improving fiscal policies concerning resources and the environment to drive coordinated progress in cutting carbon emissions, reducing pollution, pursuing green development, and boosting economic growth. It said it will actively and prudently work toward peaking carbon emissions and achieving carbon neutrality.

Given this, China’s carbon emissions market development should be seen in a global context.

The European Union Emissions Trading System (EU ETS) has been long established, and world leading. The EU commenced a significant step up in ambition and coverage from 1 Jan, given the operationalisation of the EU’s Carbon Border Adjustment Mechanism (CBAM) to ensure EU domestic industries are not disadvantaged by higher emissions imports in selected industries, namely iron and steel, aluminium, cement, fertilisers, all hydrogen imports and imported electricity. As a result, the EU CBAM provides the policy mechanism to incentivise exporters of such products into the EU to decarbonise their export-oriented emissions-intensive industries.

According to Bloomberg New Energy Finance data, China is by far the largest exporter of CBAM-covered commodities into the EU, exporting $17 billion worth of iron and steel, aluminium, fertilisers, cement, and hydrogen. However, CBAM-covered exports account for just 0.5 percent of China’s trade.

China’s national ETS commenced operations in 2021 in the electricity sector. According to Climate Energy Finance analysis in 2024, by volume of emissions covered, China is the largest in the world, four times that of the EU ETS. But with carbon pollution pricing in China tracking at just 60 to 80 yuan ($8.8 to $11.8) per tonne, this is just a tenth of the EU carbon price of 70 to 80 euros ($81 to $93) per tonne.

The policy has been implemented with ‘Chinese characteristics’, primarily that the China ETS is configured as a bottom-up, facility-level, intensity-based emissions cap, with the cap dependent on production, or more specifically, electricity generated from thermal power plants – effectively operating as a facility-level baseline mechanism. This is in contrast with EU ETS, the most established cap-and-trade mechanism, which introduces an enforceable cap on total emissions, reducing linearly over time.

China’s recent climate developments focus on advancing its dual-carbon goals.

In August 2024, China’s State Council signalled the implementation of a new mechanism for the comprehensive transformation from dual control of energy consumption to dual control of carbon emissions, in which both the total volume of emissions and emissions intensity will be used to accelerate the green transformation.

March 2025 saw China’s Ministry of Ecology and Environment announce an expansion of its carbon trading market to include the steel, cement and aluminum smelting industries, with compliance arrangements extending into 2026. This adds 1,500 enterprises to the carbon trading market covering an additional 3 billion tonnes of carbon dioxide equivalent annually, taking coverage to 60 percent of the national total.

In a related development, the US war against Iran has had global repercussions, with the greater Asian region massively impacted by rapidly rising oil, liquid natural gas and coal commodity prices and supply disruptions. This further reinforces the strategic merit of China’s world-leading investment in building out its cleantech capacities over the last two decades. Electrification and decarbonisation momentum are being accelerated as the key strategies to enhance energy independence by permanently reducing reliance on expensive unreliable fossil fuel imports. Nations across Asia are replicating China’s cleantech strategies, leveraging China’s low-cost, high-quality cleantech exports – solar modules, wind turbines, batteries and electric vehicles.

While global trade and climate progress is being undermined by the US, there remains positive progress as inter-regional dialogues step into this vacuum.

While the EU CBAM has been viewed historically as a potential restraint on international trade, it can also positively influence international trade between Asia, the Middle East and the EU, including the United Kingdom. As world leader in almost all zero-emissions industries of the future, an explicit carbon price in international trade plays to China’s advantage, even as it sustains aspirations of a unified response to a critically important global challenge – solving the global climate crisis.

The author is the founder of the Australian think tank Climate Energy Finance. The views do not necessarily reflect those of China Daily.