The basic logic of carbon markets is “Cap and Trade”: regulators set a total carbon emission cap for covered industries (Cap) and distribute emission rights (carbon allowances, CEA — Chinese Emission Allowance) to covered enterprises; companies whose actual emissions exceed their allowance must purchase in the market, while those below their allowance can sell the remainder. The core of this mechanism is using market price signals to guide enterprises toward the lowest-cost emission reduction methods to lower total industry emissions, rather than uniformly mandating each company’s reduction pathway (by contrast, a “carbon tax” directly taxes emission volumes).
## China’s National Carbon Market: Current Status and Development
**Coverage scope**: currently (first and second compliance periods) covers only the power sector, approximately 2,000 companies, covering approximately 4.5 billion tons of CO₂ equivalent annually (approximately 40% of national total emissions). Planned gradual inclusion: steel, cement, aluminum smelting, petrochemicals, chemicals, paper, aviation — fully included, it will be the world’s largest-scale carbon market. **Price levels**: China’s national carbon market price currently (2024) ranges approximately RMB 50-100 per ton of CO₂, still significantly below the EU ETS (approximately €60-80 per ton) and even further from the IEA’s calculated required carbon prices (needing to reach $130-250/ton by 2030) to achieve the 1.5°C target. **Allowance allocation mechanism**: currently primarily free allocation (based on industry intensity benchmarks), with gradual introduction of paid allocation (auction mechanism) as a future direction.
## CCER and Voluntary Carbon Markets
CCER (China Certified Emission Reduction) is a supplementary mechanism that covered companies use to offset some allowance gaps or voluntarily fulfill social responsibilities. CCER projects cover renewable energy, forestry carbon sinks (REDD+), methane recovery, and other types. CCER market restart in 2024 marks the maturing of China’s voluntary carbon market system.
## Corporate Carbon Management Practice
**GHG Inventory**: using ISO 14064 or GHG Protocol framework to account for greenhouse gas emissions from corporate operations (Scope 1, Scope 2) and supply chains (Scope 3). **Emission reduction strategies**: energy efficiency improvement (energy consumption per unit of output reduction), energy mix transition (clean energy substitution), process optimization (reducing industrial process emissions), carbon capture and storage (CCS). **ESG reporting**: carbon emission disclosure has become a standard requirement in international capital markets (TCFD framework, forthcoming SEC climate disclosure rules).
See [The Scientific Basis of Global Warming](https://sunqi.org/climate-change-science-basics-en/) and [Renewable Energy Transition](https://sunqi.org/renewable-energy-transition-en/).
