The "15th Five-Year Plan" carbon market roadmap is taking shape—what opportunities can the steel industry seize?

Recently, the "Suggestions of the Central Committee of the Communist Party of China on Formulating the 15th Five-Year Plan for National Economic and Social Development" (hereafter referred to as the "Planning Suggestions") were released. During the "15th Five-Year" period, the overall direction and implementation roadmap for building a nationwide carbon market have gradually become clearer, marking China's transition of its carbon market from pilot exploration to comprehensive deepening—moving from intensity-based control to total-volume control, and expanding from single sectors to cover the entire industrial landscape. This evolution positions the carbon market as a core policy tool for China to achieve its "dual-carbon" goals.

Focusing on the significant policy signals conveyed by the "Planning Proposal," a reporter from China Metallurgical News conducted an exclusive interview with Jiang Xuemei, Professor at the School of Economics, Capital University of Economics and Business, and Director of the Carbon Neutrality Research Center. The reporter invited her to help us decode these signals from a professional academic perspective—and to inspire us on how to turn these insights into concrete, actionable steps.

Institutional Upgrade: Total Volume Control to Become the Core Mechanism of the Carbon Market

The "Planning Proposal" explicitly proposes "implementing a dual-control system for both the total amount and intensity of carbon emissions," marking China's official transition of its environmental governance framework—from the energy consumption–focused "dual control" system, centered on total energy use and intensity, to a new "carbon emission dual control" approach anchored in carbon emission constraints.

Jiang Xuemei pointed out, "The 'dual control of carbon emissions' focuses more directly on carbon emissions themselves, rather than simply restricting energy consumption. This means that as long as companies use low-carbon or even zero-carbon energy sources—such as green electricity—even if their overall energy consumption remains relatively high, they can still secure room for growth under the targets for both total and intensity-based carbon emissions. This shift will significantly encourage businesses to proactively source green electricity, optimize their energy mix, and accelerate the adoption of green technologies across energy-intensive industries," said Jiang Xuemei.

She pointed out that this institutional reform will have a profound impact on the development of the national carbon market: First, the total carbon emission control provides a clear "cap" for the carbon market, enhancing the scarcity of carbon allowances and ensuring the effectiveness of carbon price signals. Second, the carbon intensity targets encourage industries to continuously reduce carbon emissions per unit of output during their growth, driving technological advancements and structural optimization. Finally, carbon emission accounting will become a core management metric for enterprises, compelling the improvement of data monitoring, reporting, and verification (MRV) systems—and laying the foundation for a fair and transparent operation of the carbon market.

At the regular press conference held earlier this month by the Ministry of Ecology and Environment, it was revealed that during the 15th Five-Year Plan period, China's national carbon market will gradually shift from intensity-based control to total-volume control. By 2027, quota-based total-volume control will be prioritized for industries with relatively stable carbon emissions.

Jiang Xuemei believes that the steel industry, characterized by high carbon emissions, concentrated market structure, robust data and institutional foundations, and the fact that the total carbon emissions of most leading enterprises have already stabilized, is highly likely to become one of the first key industries to implement overall emission control. "This presents both a challenge—and, more importantly, an opportunity—for the steel sector to embark on a systematic transformation," she noted.

She pointed out that this systemic shift will help establish stable and predictable carbon price signals, encouraging companies to achieve low-cost emissions reductions through technological innovation or market-based trading. "From the perspective of the carbon pricing mechanism," she explained, "under intensity-based controls, carbon quota allocations are primarily determined by the carbon emission benchmark per unit of product. As a result, even if a company’s total emissions increase, it can still secure quotas as long as its emission intensity meets the target—thus, to some extent, weakening the binding power of the carbon price signal. However, transitioning to a total-emission cap will lead to a clearly defined and progressively tightened quota ceiling, turning carbon allowances into genuinely scarce resources. Consequently, the carbon price will increasingly be shaped by supply-and-demand dynamics, significantly enhancing its price-discovery function."

Facing this trend, Jiang Xuemei advises steel companies to prepare in advance and respond proactively: First, strengthen their carbon emission data management capabilities and improve the MRV system to ensure accurate and traceable carbon accounting. Second, accelerate the deployment of low-carbon technologies, such as hydrogen-based direct reduction iron (DRI), electric furnace short-process steelmaking, and carbon capture, utilization, and storage (CCUS), to reduce overall carbon emissions at the source. Finally, actively participate in carbon trading, explore carbon finance tools, enhance their ability to engage in carbon markets, and establish a robust carbon asset management system.

“Total volume control isn’t a ‘tightening spell’—it’s rather the institutional engine driving the steel industry from ‘passive compliance’ toward ‘proactive carbon reduction.’ Only by actively embracing change can we seize the initiative in the new green and low-carbon landscape envisioned for the 15th Five-Year Plan period,” said Jiang Xuemei.

CCER market expansion: Cutting-edge low-carbon technologies such as hydrogen metallurgy are expected to receive support.

Regarding the voluntary emissions reduction trading market, the "Planning Proposal" explicitly emphasizes accelerating the development of the voluntary greenhouse gas emissions reduction trading market (hereafter referred to as the CCER market), while underscoring the need for CCER to better support the "Dual Carbon" strategy. Although currently, registered projects in the CCER market primarily focus on renewable energy sources such as wind and solar power, to align with the demands of the "Dual Carbon" goals, the CCER market is rapidly expanding its scope of supported sectors. Meanwhile, the Ministry of Ecology and Environment has opened a long-term, rolling window for soliciting methodological proposals from the public, encouraging enterprises and research institutions to submit draft methodologies for emerging fields.

Jiang Xuemei believes that cutting-edge, low-carbon technologies in the steel industry, such as hydrogen metallurgy, not only have the potential to be included in the national voluntary emission reduction certification system but also demonstrate strong policy necessity and technical feasibility—making them highly likely to become one of the key areas for future expansion in the CCER market. The reasons for this include the following three aspects:

First, from a policy perspective, hydrogen metallurgy—being one of the core pathways for deep decarbonization in the steel industry—fully aligns with the requirements outlined in the "Planning Recommendations." It achieves this by replacing… Coke As a reductant, it can enable near-zero carbon emissions in the iron-making process, demonstrating tremendous potential for technological decarbonization. This represents the cutting-edge trend of green transformation in the global steel industry, possessing both "advanced" and "demonstrative" characteristics.

Secondly, from the perspective of methodological development, leading enterprises such as China Baowu and Hebei Iron and Steel Group have recently launched pilot and demonstration projects in hydrogen-based metallurgy (e.g., hydrogen-rich carbon-cycled blast furnaces and hydrogen-based shaft furnaces), accumulating extensive process parameters, energy consumption data, and emission factors. These practical insights provide a solid empirical foundation for developing a hydrogen-metallurgy emissions reduction accounting methodology tailored to China's national conditions. As long as relevant stakeholders actively participate in the methodology’s application and technical validation, it is entirely feasible to facilitate its inclusion into the CCER system.

Third, from the perspective of market-driven demand, the widespread adoption of low-carbon technologies such as hydrogen-based metallurgy currently still faces bottlenecks, including high investment costs, weak economic viability, and a lengthy commercialization cycle. If companies can leverage the CCER mechanism to unlock additional carbon asset revenues, it will significantly boost their investment enthusiasm. By generating carbon revenue, enterprises can effectively offset their R&D expenditures, fostering a positive feedback loop that encourages "technology investment—emission reduction verification—carbon asset monetization—reinvestment."

She further suggested that industry leaders collaborate with research institutions to promptly initiate preliminary research and the application process for the hydrogen-based metallurgy CCER methodology. At the same time, she called on relevant authorities to provide policy support favoring industrial deep-decarbonization technologies during the methodology review. "Only by deeply integrating market mechanisms with technological innovation can we truly unlock the intrinsic momentum driving the steel industry's green transformation," said Jiang Xuemei.

Zero-Carbon Opportunities: Driving the Steel Industry Toward "Systemic Carbon Neutrality"

The "Planning Proposal" clearly states that during the 15th Five-Year Plan period, China will accelerate the construction of zero-carbon factories and parks, with an ambitious goal of establishing approximately 100 national-level zero-carbon parks. Jiang Xuemei believes this initiative is not only a major project for regional green development but also presents the steel industry with an unprecedented opportunity for systemic transformation.

She believes that the emerging opportunities steel companies can seize are primarily reflected in the following three areas:

First is the "anchor enterprise" role in the zero-carbon park. Large Steel Profiles Steel enterprises often serve as the core of a regional industrial system, occupying a pivotal position as hubs for energy, raw materials, and infrastructure. In the development of zero-carbon parks, steel companies can proactively apply to become "zero-carbon anchor enterprises" or "green chain leaders," leveraging their own deep decarbonization efforts to drive the optimization of the park's overall energy structure. As a result, they can gain preferential policy treatment, access green finance support, and secure priority allocation of land resources.

Second, there’s a new model for local consumption of green electricity and green hydrogen. Zero-carbon parks typically come equipped with renewable energy projects—such as wind power and photovoltaics—as well as green hydrogen production facilities. Steel companies can significantly reduce operational costs in hydrogen-based metallurgy or electric arc furnace steelmaking by developing integrated projects like "source-grid-load-storage-hydrogen," enabling direct supply of green electricity and direct use of green hydrogen.

Third is the value-added potential of carbon assets and green certifications. Companies within zero-carbon parks can more easily obtain prestigious certifications such as "Zero-Carbon Factory" and "Green Supply Chain," which not only help meet the low-carbon steel procurement requirements of downstream industries like automotive, home appliances, and construction but also translate into export advantages, enabling them to better navigate carbon tariffs like the EU's Carbon Border Adjustment Mechanism (CBAM). Meanwhile, centralized carbon emission management in zero-carbon parks further empowers steel enterprises to participate more efficiently in voluntary emission reduction schemes such as CCER and Carbon Inclusive Programs, ultimately unlocking diversified revenue streams from carbon assets.

Jiang Xuemei believes that the steel industry holds significant potential for collaborative carbon reduction within regional industrial chains, primarily reflected in three dimensions of synergy:

First, promote energy flow synergy and build a regional energy-cycling system. During steel production, significant amounts of waste heat, residual pressure, and by-product gases are generated—these can be supplied within the industrial park to enterprises such as chemical plants and heating companies, replacing fossil fuels and enabling "multi-level energy utilization combined with cross-sectoral carbon-emission offsetting."

Second, material flow synergy—driving Scrap steel —Electric furnace—short-process closed loop. In industrial parks dominated by automotive and machinery manufacturing, steel companies can collaborate with downstream manufacturers to establish a "regional Scrap Steel Recycling —Category—Refurbishment” system, developing short-process electric furnace steel to significantly reduce carbon emission intensity.

Third, foster carbon flow synergy and establish a collaborative mechanism for managing the carbon footprint across the industrial chain. Under the zero-carbon park framework, a carbon management alliance can be formed—led by the "chain-leading enterprise," with upstream and downstream partners sharing responsibilities. This alliance will standardize carbon accounting practices, pool cutting-edge emission-reduction technologies, and jointly apply for green projects, creating a closed-loop governance system that promotes "collaborative carbon reduction—shared benefits."

“During the ‘15th Five-Year Plan’ period, the construction of zero-carbon parks provides a strategic foothold for the steel industry to transition from ‘point-based carbon reduction’ to ‘systemic carbon neutrality.’ Steel companies should think beyond the traditional factory boundaries and proactively integrate into regional green ecosystems, leveraging ‘energy synergy, material circulation, and collaborative carbon management’ as key drivers to transform themselves into the green engines powering these zero-carbon parks,” concluded Jiang Xuemei.

Addressing International Challenges: Carbon Markets Become a Key Tool to Overcome CBAM Impasses

As the EU's Carbon Border Adjustment Mechanism is fully implemented in 2026, high-carbon products—including steel—will be subject to hefty "carbon tariffs," directly increasing export costs for Chinese companies.

"Against this backdrop, a sound, efficient, and internationally aligned national carbon market will serve as the core institutional support and strategic buffer tool for China's steel enterprises in addressing carbon barriers," emphasized Jiang Xuemei.

She believes that the carbon market can help China's steel industry break through existing challenges from the following three dimensions.

First, establishing a mechanism for "internalizing carbon costs" can help ease the pressure of double taxation under CBAM. "At its core, CBAM works by levying a differential tax on imported products—specifically, the difference between the EU's carbon price and the carbon costs incurred in the exporting country. If Chinese steel companies have already paid their actual carbon emission costs in the domestic carbon market, and these costs are recognized by the EU, they can be used to offset the corresponding CBAM charges." Jiang Xuemei pointed out that the steel industry has already been integrated into the carbon market, and the allocation of quotas will gradually shift from predominantly free distribution to auction-based systems, driving carbon prices toward a more rational range. Once an internationally comparable carbon pricing mechanism is established, complemented by a transparent MRV system and robust records of quota trading, China can leverage this framework in negotiations with the EU, emphasizing that "carbon responsibilities have already been fulfilled." This approach could enable China to seek partial exemptions or offsets from CBAM fees, thereby avoiding the risk of double taxation.

Second, it is crucial to encourage enterprises to establish comprehensive carbon footprint management systems that meet the data disclosure requirements of the CBAM. The CBAM mandates importers to report the "embedded carbon emissions" of their products—covering the entire lifecycle from raw materials to finished goods—and to undergo third-party verification. This places extremely high demands on Chinese steel companies' ability to manage carbon data effectively. Meanwhile, the institutional development of China's national carbon market—including unified accounting guidelines, electronic ledger systems, and robust third-party verification mechanisms—is already compelling enterprises to build standardized carbon management frameworks that encompass Scope 1 (direct carbon emissions) and Scope 2 (indirect carbon emissions from purchased electricity). "As carbon markets expand and data quality improves in the future," said Jiang Xuemei, "steel companies will be better equipped to accurately calculate their product carbon footprints, enabling them to generate carbon data assets that are verifiable, traceable, and internationally recognized. This not only serves as the foundation for companies to comply with the CBAM but also positions them as key players capable of securing global green procurement orders."

Third, leveraging the carbon market can incentivize investments in low-carbon technologies, enhancing the green competitiveness of products. Jiang Xuemei stated: "At its core, CBAM imposes taxes on 'high-carbon products'; therefore, the fundamental solution lies in reducing the carbon intensity per unit of product." The national carbon market, through carbon price signals and quota constraints, is actively encouraging steel companies to accelerate the adoption of low-carbon technologies, including electric furnace short-process steelmaking, hydrogen-based metallurgy combined with hydrogen-rich blast furnaces, procurement of green electricity integrated with smart grid management, and CCUS technologies. While these technological pathways typically feature long investment payback periods and high upfront costs, the carbon market’s long-term price expectations and potential carbon asset revenues—such as future CCER credits or carbon-finance instruments—can significantly improve project economics. This, in turn, helps companies develop premium products like "low-carbon steel" and "zero-carbon steel," enabling them not only to meet compliance requirements under the CBAM framework but also to command higher market premiums.

“The national carbon market is not only an environmental policy tool but also a strategic infrastructure that enables China to participate in global climate governance and the reshaping of trade rules. The steel industry should proactively integrate into the construction of the carbon market, transforming the pressure of carbon costs into a competitive edge for green innovation—and seizing the initiative and securing a sustainable future in the era of CBAM,” concluded Jiang Xuemei.

Forward-looking suggestion: Shifting from "point-based control" to "chain-based governance"

Regarding the future development of the carbon market, Jiang Xuemei suggests exploring innovative mechanisms such as industry-chain joint compliance in the institutional design. "Currently, the carbon market allocates and manages carbon quotas on a company-by-company basis. However, the steel industry's carbon emissions are deeply embedded in regional industrial chains, meaning that its emission reduction achievements often depend on coordinated efforts across upstream and downstream sectors," said Jiang Xuemei.

She pointed out that if, in the future, chain-leading enterprises are allowed to take the lead in integrating upstream and downstream carbon emission data and piloting total-volume control at the park or industrial cluster level, it would not only provide a more accurate reflection of the system's emission reduction potential but also help avoid rising costs caused by fragmented management.

"If the future carbon market can shift from 'fragmented regulation' to 'chain-based governance,' it will more effectively support the steel industry's systemic green transformation," suggested Jiang Xuemei.

"As the carbon market mechanism continues to improve, petrochemical and chemical industries, Non-ferrous metals "Industries with high energy consumption, high emissions, and strong data foundations—such as papermaking and aviation—will also be gradually integrated into the system. Through market mechanisms, these industries will be encouraged to accelerate technological innovation and industrial upgrading, driving them to reduce energy use and carbon emissions. Ultimately, this will foster a new, multi-sectoral "chorus" in the carbon market," said Jiang Xuemei. "Overall, the 15th Five-Year Plan period will be a critical five-year span for China's carbon market—as it transitions from institutional development toward full-scale operation, and from domestic implementation to international alignment. With the effective implementation of total emission caps, the rapid expansion of covered sectors, and continuous innovation in market mechanisms, the carbon market is poised to become an indispensable institutional engine propelling China's green and low-carbon transformation."