This report examines the challenges and policy options for expanding China's national carbon emissions trading scheme beyond the power sector to include additional industries such as cement, aluminum, steel, chemicals, and others. It identifies information gaps—particularly the lack of detailed data on diverse industrial processes and trade exposure—and concerns about international competitiveness as key obstacles to expansion. To overcome these barriers, the report recommends a three step approach: first, introducing a price collar (price floor and ceiling) to manage economic risks and address competitiveness concerns; second, simplifying allocation benchmarks by reducing the number of technology specific benchmarks to the minimum feasible per product category; and third, highlighting the alignment between ETS expansion and China's broader economic strategy of fostering domestic innovation and competitiveness in growing global clean technology markets. The report also includes a case study on green hydrogen to illustrate the innovation and market opportunities that ETS expansion can catalyze, arguing that the economic benefits—though often overlooked—warrant greater attention from policymakers and industry stakeholders.

This report provides an overview of the Carbon Border Adjustment Mechanism, with a focus on the European Union's recent legislative progress and the potential implications for China's exports. It traces the evolution of CBAM from early discussions to the EU's formal proposals, explains the design options under consideration, and identifies the sectors most likely to be affected (such as steel and aluminum). The report analyzes the potential economic impact on Chinese industries, including cost increases and competitive pressures, while also discussing the uncertainties around WTO compatibility and the broader trend of environmental requirements in international trade. It offers policy recommendations for China, including strengthening the domestic carbon market, exploring a carbon tax, and encouraging corporate decarbonization strategies, to prepare for possible carbon border adjustments and the growing role of climate factors in global trade.