China is globalising its carbon market – and creating a win-win scenario for the world

CHINA built the world’s largest carbon market. Its next step should be to connect it to the world.

Policymakers and business leaders gathered in Wuhan last week for the Two Lakes Dialogue and China Carbon Market Conference, with the future of China’s carbon market high on the agenda.

Connecting China’s carbon market to the world may sound like a tall order at a time when trade barriers are rising, and climate cooperation is under strain.

And carbon markets still remain fragmented by geography, regulation and eligibility rules. This limits how credits can be used across markets, weakens price signals and leaves potentially valuable emissions reductions unfunded.

But these markets work best when capital can flow to the places where emissions can be reduced most efficiently. China has the scale to help change that and a clear economic interest in doing so.

As of 2026, its national emissions trading system already covers roughly eight billion tonnes of greenhouse-gas emissions a year, equivalent to about 60 per cent of China’s carbon dioxide emissions.

The power sector was the first to come under the system, followed by cement, steel and aluminium in 2025. Beijing plans to add other major industries, and by 2030 the market could cover as much as 80 per cent of the country’s carbon emissions.

Sitting alongside the national emissions trading system is the China Certified Emission Reduction programme (CCER), which China relaunched in 2024 with tighter rules after a seven-year hiatus.

Qualifying projects in areas such as renewable energy, forestry and methane utilisation generate carbon credits. Companies covered by China’s national carbon market can then use these credits to meet up to 5 per cent of their compliance obligations.

Expanding the CCER internationally

For now, the programme is entirely domestic. It need not remain so.

Our analysis estimates that eligible Chinese projects could supply around 213 million credits annually by 2030.

By then, China’s national emissions trading system could cover 10.5 billion tonnes of emissions, implying a theoretical maximum demand of 525 million credits a year under the 5 per cent limit, and a shortage in domestic supply of as much as 312 million credits a year.

If even part of this shortfall were met internationally, the financial implications would be substantial.

At prices seen in early government-to-government carbon transactions, 312 million credits could translate into US$7.8 billion to US$13.4 billion a year in financing that would flow into emissions reduction projects abroad, creating a win-win scenario for China and recipient nations.

International credits should not come at the expense of reducing emissions at home. But eliminating every tonne of emissions domestically will become progressively more expensive because of diminishing returns.

Allowing companies to purchase a limited quantity of credible reductions abroad could lower compliance costs while directing capital to where emissions can be reduced more cost-effectively.

The economic benefits could extend well beyond carbon credits.

China is already the world’s leading producer of solar panels, batteries and electric vehicles. Expanding the CCER programme to a global scale could combine Chinese technology with private capital and local partners to develop cleaner transport, energy and industrial projects across emerging markets.

Host countries would benefit from greater investment, technology transfer and job creation. China, in turn, would gain new markets for its green industries, access to lower-cost emissions reductions and take on a greater role in shaping the rules of international carbon markets.

Internationalisation could also support a broader ecosystem of financial and professional services, with Hong Kong and Singapore seeking to become global carbon services and trading hubs that connect international supply with Chinese demand.

Beyond the economic dimension

There is also a geopolitical case behind carbon markets. As renewable energy becomes increasingly cost competitive, the low-carbon transition is becoming a question of energy security and economic resilience.

For countries dependent on imported fossil fuels, recent tensions in the Middle East have demonstrated how access to renewable energy can reduce exposure to volatile global energy prices and supply disruptions.

Carbon markets are hence intertwined with energy security considerations.

The implications also extend to trade and market rules. As more countries put a price on carbon, the rules governing how greenhouse-gas emissions are measured, verified and priced will increasingly shape international trade.

For example, the EU’s Carbon Border Adjustment Mechanisms, which came into effect in 2026, impose a cost on carbon-intensive imports to the bloc.

China is already helping to shape these rules as a co-chair alongside Brazil and the EU in the Open Coalition on Compliance Carbon Markets. The coalition seeks greater alignment on market design, carbon accounting, interoperability across markets and the use of high-integrity carbon credits.

The wealth of experience China has in managing carbon markets puts it in a good position to internationalise the CCER.

Doing so will nevertheless require China to balance sovereignty with global acceptance. Beijing will want to retain control over its government-administered crediting programme, while international participants look towards independent benchmarks for carbon credits, such as the one established by the Integrity Council for the Voluntary Carbon Market.

China need not adopt the rules written elsewhere, but demonstrating compatibility and comparability with such widely recognised standards could help CCER credits gain international acceptance.

Moreover, the Paris Agreement already provides a framework for doing so. Article 6.2 of the agreement allows countries to transfer verified emissions reductions between one another when both governments authorise the transaction and account for it so that the same reduction isn’t claimed twice.

China could use this framework to extend CCER internationally through bilateral agreements.

An obvious objection remains: Carbon markets have a mixed record. Some projects have been credited for emissions reductions that might have happened anyway, while others have overstated their climate benefits.

That is an argument for stronger standards, not for keeping markets isolated. International CCER credits should qualify only when emissions reductions are additional, durable, robustly quantified and independently verified.

Local communities should share in the economic benefits, while sufficient information ought to be publicly disclosed to allow market participants to scrutinise project claims. Credits that cannot meet these standards should not enter the system.

Targeted launch before global implementation

China should start small. Beijing could begin with a select group of trusted partner countries which have credible climate plans and strong economic ties with China.

Governments could agree on a limited set of eligible project types, common measurement requirements and independent verification.

State-owned enterprises could anchor early transactions, establishing a track record before the market opens more broadly to private capital.

China would also need to upgrade its carbon market infrastructure. Every international credit should be traceable from issuance through transfer and eventual use or cancellation.

As the CCER grows to include more buyers and sellers, foreign participants need clear rules for opening registry accounts, moving capital and trading credits.

None of this will be simple. Chinese ministries will have to coordinate. Some partner countries will need stronger technical capacity and better tracking of emissions data. Carbon prices will fluctuate, and poorly designed projects could undermine confidence in the system.

But these are arguments for opening carefully, not for remaining closed. Pilot programmes, conservative eligibility rules and transparent data can reveal problems before the system expands.

The market design decisions China makes today could shape investment flows into low-carbon technologies for decades. Its carbon market is already too large to be viewed only through a domestic lens.

By carefully opening CCER to international cooperation, China could lower the cost of meeting its climate goals, create new markets for Chinese green industries and direct billions of dollars towards emissions reductions in developing economies.

China has already built the world’s largest carbon market. Connecting it to the world could make it one of the most consequential forces not just in global climate finance, but also the international energy landscape.

Both writers are from Climate Bridge International, where they focus on the development and financing of Singapore Article 6-eligible carbon credits. Alvin Lim is CEO. Tan Chin Hwee is chairman.

This essay is part of New Global Order, a series which explores how the changing world landscape is reshaping business, politics and beyond.