Key Milestones in 2025

January 17 — The National Financial Regulatory Administration (“NFRA”) and the People's Bank of China ("PBOC") jointly issued the Implementation Plan for High-Quality Development of Green Finance in the Banking and Insurance Industries.

March 6 — The first batch of China Certified Emission Reductions (“CCERs”) in the voluntary carbon market was registered and commenced trading on the following day.

March 6 — The National Development and Reform Commission (“NDRC”) and four other ministries jointly issued the Opinions on Promoting High-Quality Development of the Renewable Energy Green Electricity Certificate Market.

March 18 — The Fengtai District People's Court of Beijing announced Beijing's first case of liquidation of carbon emission allowances.

March 20 — The Ministry of Ecology and Environment (“MEE”) issued the Work Plan for the National Carbon Emission Trading Market to Cover the Steel, Cement and Aluminum Smelting Industries.

May 22 — The MEE and fourteen other ministries jointly issued the National Climate Change Response Standards System Construction Plan.

May 24 — The General Office of the CPC Central Committee and the General Office of the State Council jointly issued the Opinions on Promoting Green and Low-Carbon Transition and Strengthening the Construction of the National Carbon Market.

June 27 — The State Administration for Market Regulation and other ministries jointly released the country's inaugural Pilot Certification Directory for Product Carbon Footprint Labelling and Certification.

June 27 — The PBOC, the NFRA and the China Securities Regulatory Commission (“CSRC”) jointly issued the Green Finance Supported Project Catalogue (2025 Edition), which took effect on 1 October 2025.

September 24 — The MEE released the National Carbon Market Development Report 2025.

November 16 — The MEE issued the 2024–2025 Quota Totals and Allocation Plans for the Steel, Cement and Aluminum Smelting Industries under the National Carbon Emission Trading Market.

December 19 — The Ministry of Finance (“MOF”) and eight other ministries jointly issued Enterprise Sustainability Disclosure Standard No. 1 — Climate (Trial).

Key Regulatory Review in 2025

1. Carbon Market Expands in Scope and Improves in Quality, with Trading Activity Further Energized

In 2025, policies expanding the national carbon market were formally implemented, rapidly accompanied by a series of supporting measures. In March 2025, the MEE's Work Plan for the National Carbon Emission Trading Market to Cover the Steel, Cement and Aluminum Smelting Industries formally brought these three industries within the coverage of the national carbon market, which was the first expansion in that market’s history. The MEE issued ancillary working notices in April 2025 and plans for aggregate levels and allocations of quotas in November 2025, providing high-level direction to the work of compiling a list of key emissions-producing entities, data quality management, quota allocation and returns in the three newly included industries, and setting out detailed rules on quota calculation, quota awarding, and rules for production of returns and carryovers. By December 2025, a total of 1,291 key entities in the steel, cement and aluminum smelting industries had been brought into the national emissions quota management system.

In parallel, trading mechanisms and quota allocation methods continued to improve. In June 2025, the national carbon market introduced a one-way bid trade which, compared to the previous negotiated transfer method, provides greater liquidity, transparency and price discovery. With the improved market design, total annual quota trading volume reached 235 million tons by 31 December 2025, a year-on-year increase of approximately 24%, with a total transaction value of RMB 14.63 billion, reflecting continued growth in market scale. Separately, regulators signalled increasing openness to experimenting with charging for allocations, beyond the prevailing free allocation approach. The landmark policy document issued by the General Office of the CPC Central Committee and the General Office of the State Council in May 2025 — the Opinions on Promoting Green and Low-Carbon Transition and Strengthening the Construction of the National Carbon Market — called for “steadily advancing a combined free and paid quota allocation model, with a phased increase in the proportion of paid allocations.” The MEE also stated on multiple occasions in 2025 that accelerating the rollout of paid allocation represents the primary direction for future quota management, as it holds key emissions-producing entities to their emissions reduction responsibilities, diversifies compliance channels for businesses, and strengthens supply-demand regulation in the market.

2. Unified Standards Advance in Green Finance, Further Strengthening Its Guiding Role Across Sectors

In 2025, green finance made steady progress towards unified standards in coverage, project classification and risk management.

Previously, the green finance landscape had operated under multiple parallel standard-setting regimes: green bonds were recognized under the Green Bond Supported Project Catalogue (2021 Edition) (the “Project Catalogue”); green loans followed the Green Loan Special Statistical System (2019) and the Green Financing Statistical System (2020); and the Green and Low-Carbon Transition Industry Guidance Catalogue (2024 Edition) (the “Guidance Catalogue”) defined subcategories and specific criteria for priority green low-carbon transition industries. While this piecemeal framework helped green finance get off the ground, it also created comparability and consistency gaps in regulatory statistics, and raised transaction costs for market participants.

In 2025, regulatory authorities consistently sent regular signals of standardization. In January, the NFRA and the PBOC jointly issued the Implementation Plan for High-Quality Development of Green Finance in the Banking and Insurance Industries, which called for differentiated requirements for green loans and green insurance products and unified expectations for increases in risk management capability of banks and insurers and for strengthened institutional buildup in green finance. This gave a push towards coordinating risk management and business standards across financial sub-sectors. In February, the CSRC issued Implementation Opinions on the Capital Market's Role in the Five Significant Sectors, explicitly calling for an improved green finance standards framework with consistent rules governing green bond proceeds usage, information disclosure and regulatory requirements.

Drawing on these macro-level policy initiatives, and on the basis of the Guidance Catalogue and the Project Catalogue, the PBOC, the NFRA and the CSRC jointly revised and published the Green Finance Supported Project Catalogue (2025 Edition) in October 2025. Aside from listings, equity issuances and related activities on the Shanghai, Shenzhen and Beijing stock exchanges, the Catalogue applies to all green financial products issued after its publication, integrating statistical definitions across green financial products, reducing project classification costs for financial institutions, eliminating cross-regulatory inconsistencies in “green” recognition, and providing institutional certainty for green asset management across markets and products.

3. Innovation in Green Financial Products Accelerates, with Judicial Protections Strengthened for Existing Products

In 2025, green financial product innovation continued to accelerate, with multiple landmark inaugural transactions coming to market. In August 2025, the State Administration of Foreign Exchange launched a green foreign debt pilot program across sixteen provinces and cities, for the first time directly linking foreign debt quotas and fund usage to green and low-carbon projects. By expanding cross-border financing ceilings and simplifying foreign debt management rules, the pilot opens additional possibilities for non-financial enterprises to access medium- and long-term green capital, and provides a workable policy template for connecting China's green finance with international capital markets. In November 2025, three enterprises designated as key contributors to China's dual carbon goals became the first to sign green foreign debt agreements, with aggregate financing of over RMB 300 million, channeling fresh capital into distributed renewable energy, energy storage and recycling projects. Other innovative green financial products also emerged during the year. These included China's first “carbon-neutral grassland note”, which monetizes the ecological and economic value of grassland resources in certificate form and uses it as collateral to provide productive loans to herders; and the first carbon information disclosure liability insurance product, which uses market-based insurance mechanisms to address compliance risks in carbon footprint management and disclosure.

Judicial protections for existing green financial products were further clarified. In March 2025, the Fengtai District People's Court of Beijing announced Beijing's first case involving the liquidation of carbon emission allowances, innovatively placing carbon emission allowances registered in the judgment debtor's account on the Beijing carbon emission management system into compulsory enforcement proceedings. This established the judicial recognition of carbon emission allowances as proprietary assets. As a further step, Guangdong Province issued guidance in August 2025 constituting the first provincial-level framework for carbon allowance pledge financing which addresses the three aspects of pledge registration and rights confirmation, financial product innovation and judicial service protection, thus providing a “Guangdong model” of arelatively structured judicial protection for carbon allowance pledge financing.

4. Sustainable Disclosure Rules Become More Institutionalized; Quality of Sustainability Disclosure by Corporates Steadily Improves

In 2025, China's sustainability disclosure rules clearly moved away from broad principles towards defined standards, emphasizing alignment with international frameworks. As the rules continued to mature, the quality of sustainability disclosure improved, better serving green transition decision-making.

At the macro-policy level, in February 2025 the MEE, the MOF, the PBOC and the NFRA jointly issued the Opinions Driving Voluntary Corporate Greenhouse Gas Disclosure — the first national-level document to comprehensively articulate top-level design and implementation pathways for corporate greenhouse gas disclosure. The Opinions propose a full-chain technical standards framework covering audit, disclosure and certification, and explicitly called for aligning China's voluntary corporate greenhouse gas disclosure standards with international greenhouse gas disclosure frameworks and pursuing mutual recognition — a clear signal that China's disclosure rules are moving toward gradual interoperability with global standards.

Concrete implementation tools followed in quick succession. At the level of national standards and guidance, in September 2025, the MOF issued the Application Guide to the Sustainability Disclosure Standards for Enterprises — Basic Standards (Trial), supplementing the existing basic standards with more directional and operational guidance. In December 2025, the MOF and eight other ministries jointly issued Enterprise Sustainability Disclosure Standard No. 1 — Climate (Trial), which is broadly consistent with IFRS S2 issued by the International Sustainability Standards Board (“ISSB”), facilitating alignment with international practice and helping enterprises simultaneously satisfy domestic regulatory requirements and the disclosure demands of cross-border capital markets. At the exchange level, in September 2025, the Shanghai, Shenzhen and Beijing stock exchanges jointly issued drafts for public consultation on revisions to their sustainability reporting guidelines, adding application guidance on pollutant emissions, energy use and water resource utilisation, with a focus on key challenges including the identification and assessment of risks and opportunities, accounting processes and methods, and key disclosure requirements in these areas.

As sustainability disclosure rules continued to mature, the quality of corporate disclosure advanced steadily. A sustainability disclosure analysis report published by the China Listed Companies Association in August 2025 found that overall disclosure quality and disclosure rates among A-share listed companies had risen in the preceding year.

5. Domestic and International Efforts Pursued in Tandem to Address Challenges in Green Certification and Green Power

In 2025, the green electricity certificate (“GEC”) and green power sectors continued to face a number of development challenges: oversupply kept certificate prices subdued, while consumption obligations for energy users had not yet been fully enforced. On the international front, the EU's Carbon Border Adjustment Mechanism (“CBAM”) and the EU Battery and Waste Battery Regulation imposed stricter environmental standards on Chinese exports, intensifying pressure from green trade barriers. China responded with a multi-pronged strategy.

On the domestic demand side, top-level both target-setting and concrete plans were floated. In early 2025, the NDRC and four other ministries jointly issued the Opinions on Promoting High-Quality Development of the Renewable Energy Green Electricity Certificate Market, setting out the macro-level policy goals of “voluntary consumption of green electricity significantly enhanced across the nation, effective international application of GECs achieved, and environmental value of green electricity  fairly reflected in the price” by 2030. In May 2025, the NDRC and the National Energy Administration (“NEA”) issued a notice requiring that no less than 60% of a project’s annual self-generated renewable power be consumed on-site. In July 2025, the NDRC and the NEA issued a further notice expanding the range of industries and sectors subject to renewable energy consumption obligations, introducing mandatory green electricity consumption ratios for the steel, cement and polysilicon industries and for newly built data centers at national hub nodes, with GECs designated as the primary instrument for measuring compliance in key energy-consuming industries. Driven by these policies, the GEC market recorded strong growth, with green power demand robustly advancing in volume and price. In 2025, China issued a total of 2.947 billion GECs and traded a cumulative 930 million GECs — a year-on-year increase of 1.2 times, with the full-year trading volume exceeding the combined total of all prior years. The number of entities participating in GEC transactions reached 111,000, a year-on-year increase of 87.5%. Purchases by individuals  totalled 7.24 million GECs, six times the 2024 figure. Average GEC transaction prices in the second half of 2025 reached approximately RMB 4.14 per certificate, a 90% increase over the first half.

On the international front, China actively worked to advance recognition of its GECs abroad to align with global norms and address green trade barriers. In March 2025, RE100 — a globally influential non-governmental initiative promoting renewable electricity consumption — announced its unconditional acceptance of Chinese GECs, significantly enhancing their international credibility. In November 2025, China's GEC system and practices were showcased at the 30th session of the Conference of the Parties to the UN Framework Convention on Climate Change ("COP30"), also to positive reception.

6. Carbon Footprint Management Framework Strengthened with Initial Buildup of the Emission Factor Database

Building on the initial establishment of China's product carbon footprint management framework in 2024, efforts in 2025 focused on three areas to drive its steady development: strengthening standards, actual certifications and strengthening data foundations.

For carbon footprint accounting, standard-setting came first. In January 2025, the MEE, NDRC and other ministries issued the Guidelines for the Preparation of Product Carbon Footprint Accounting Standards, which prescribe multiple unification requirements aimed at improving the coherence and standardization of the product carbon footprint standards regime. In accordance with this policy guidance, related standards were progressively introduced: in March 2025, the MEE solicited public comments on national ecological and environmental standards for product carbon footprint quantification methods and requirements covering five product categories, further extending the standards framework to specific products; in April 2025, 18 national standards for corporate greenhouse gas emission accounting came into force, spanning major industries including foundry, non-ferrous metals, and chemicals, setting uniform requirements for what and how to measure.

Carbon footprint labeling and certification was rolled out from pilot to scale. In January 2025, the Certification and Accreditation Administration of China (“CNCA") published the results of its selection process for the first selection of pilot institutions under China's product carbon footprint labelling certification scheme. 26 institutions were selected, marking the formal launch of the national product carbon footprint labelling certification system. In March 2025, CNCA officially issued the General Implementation Rules for Product Carbon Footprint Labelling and Certification (Trial), a milestone breakthrough in the development of a unified national certification regime. In July 2025, the MEE and two other ministries jointly released the first national pilot catalogue for product carbon footprint labelling certification, covering 17 product categories including lithium-ion batteries and photovoltaic modules. From 2024 to 2025, China's product carbon footprint labelling certification system evolved from local pilots and experience building to a nationwide pilot program with unified rules, and began to fulfil its core role in ensuring accounting consistency across the product carbon footprint framework.

The development of carbon footprint data systems is well underway. In December 2025, the MEE and six other ministries jointly issued the Product Carbon Footprint Emission Factor Database Guidelines, setting targets to establish an initial database by 2027 and a basically complete database by 2030, thus continuing to support data in and standardization of product carbon footprint management and faster alignment with international carbon standards.

7. Environmental Legislation Steadily Advances Towards Codification, Structuralization and Green Low Carbon Development

In 2025, China progressed its eco environmental protection legislation in a systematic, integrated manner, moving from disparate, piecemeal regulations towards a rigorously structured regulatory framework and codified legislation. Legislative content moved beyond traditional pollution control, actively extending into growth areas such as green and low carbon development.

The core milestone was the drafting of the Eco Environment Code of the People’s Republic of China (Draft). Substantive deliberations on the draft code commenced in 2025, and by the end of the year a third draft had been produced. It is expected to be submitted for enactment as early as the Fourth Session of the 14th National People’s Congress in March 2026, which would make it the second law to be promulgated in code form, after the Civil Code. The code marks a shift away from legislation centered on individual ecological elements towards an approach that emphasizes holistic, systematic protection. The draft code contains a dedicated section on green and low carbon development, with legislative discussions underscoring the need to improve integrated regulation of water resources, water environments and water ecosystems, as well as the system of ecological compensation, reflecting a legislative philosophy that has broadened from end of pipe treatment to encompass source prevention, systemic governance and low carbon transition.

Meanwhile, supporting specialized legislation and institutional development were strengthened in parallel, in close coordination with the codification process. In May 2025, the CPC Central Committee and the State Council issued the Regulations on Eco‑Environmental Protection Inspections, which seek to ensure effective implementation of environmental laws and regulations by reinforcing supervisory and accountability mechanisms, embodying a balanced emphasis on both legislation and enforcement. In November 2025, the State Council promulgated China’s first administrative regulation on eco‑environmental monitoring, the Regulation on Ecological and Environmental Monitoring, which focuses squarely on environmental monitoring data quality. By standardizing monitoring activities, it provides an important scientific basis for environmental management, law enforcement and judicial activities, as well as for carbon accounting.

8. China Makes Additional Quantitative International Commitments and Upholds Responsibility Through Practical Cooperation

China’s role in global climate governance is evolving from participant to leader and key contributor.

In September 2025, at the United Nations Climate Summit, President Xi Jinping announced China’s new round of Nationally Determined Contributions (“NDCs”), setting out a series of targets, including a commitment that “by 2035, China's economy-wide net greenhouse gas emissions will be 7–10% below peak levels.” Subsequently, in November 2025, China officially submitted its 2035 Nationally Determined Contribution to the Secretariat of the United Nations Framework Convention on Climate Change, containing three concrete quantitative targets, as follows: non fossil fuels will account for more than 30% of total energy consumption; installed wind and solar power capacity will reach more than six times the 2020 level; and forest reserve will exceed 24 billion cubic meters. These pledges have provided a strong anchor of certainty for global climate action.

By October 2025, China had signed 55 Memoranda of Understanding on South South Cooperation on Climate Change with 43 developing countries. Through joint development of low carbon demonstration zones, climate change mitigation and adaptation projects, and by hosting climate change training and exchange workshops, China is helping other developing countries enhance their capacities to address climate change. At the regional level, the Tripartite Joint Action Plan on Environmental Cooperation among China, Japan and the Republic of Korea (2026–2030) was also adopted in September 2025, underscoring China’s determination and practical action to work with its neighbors on long-term global environmental and climate governance.

Taken together, China’s current international cooperation on climate and the environment has led to a multidimensional pattern of “firm commitments and quantitative implementation” taking shape. Against the grave backdrop of the United States’ formal withdrawal from the Paris Agreement in early 2026, China is well-positioned to play a pivotal role in addressing global challenges through concrete action.

Regulatory Outlook for 2026

1. China Will Face an ESG Disclosure Challenge in 2026, Marking a Comprehensive Upgrade from Regulatory Compulsion to Industry Wide Norm

Under the self‑regulatory guidelines on sustainability reporting issued by the Shanghai Stock Exchange and Shenzhen Stock Exchange, listed companies falling within the scope of disclosure obligations must formally submit their 2025 Sustainability Report starting from 30 April 2026. ESG can no longer be treated as an optional add‑on, but must be embedded into every aspect of day-to-day management, data governance and even corporate strategy.

At the level of unified regulatory standards, 2026 is expected to see an accelerated push to build a harmonized ESG rating and evaluation framework in the financial sector. Regulators are likely to strengthen ESG assessments of listed companies and guard against greenwashing risks through a dual mechanism of “incentives plus constraints,” while a unified evaluation system will in turn help enterprises enhance their governance and information transparency. For example, in December 2025, China's first ESG-titled national standard in the financial sector — the Environmental, Social and Governance Evaluation Framework for Bond Issuers — was officially issued. Drafted under the guidance of the PBOC and led by China Central Depository & Clearing Co., Ltd., the Frameowrk provides a unified benchmark for ESG evaluations in the bond market.

In addition, ESG services and assessments are also expected to enter a more standardized development phase in 2026. In December 2025, the All‑China Environment Federation issued China’s first group standard titled Requirements for Corporate Environmental, Social and Governance (ESG) Rating Agencies, which prescribes qualification criteria, assessment procedures and disclosure obligations for ESG rating agencies. This standard seeks to tackle the entrenched problem of "ratings for ratings' sake" and promote a more professional and standardized ESG rating industry. 

2. Voluntary Carbon Market Supply to Expand, CCER Regime Revamp Expected

After a capacity expansion phase in 2025 marked by the successive release of multiple rounds of CCER methodologies and a substantial widening of sectoral coverage, the CCER mechanism is expected toundergo substantive reform in 2026.

On the one hand, under the Notice on Ensuring the Effective Linkage Between Green Power Certificates for Renewable Energy and the Voluntary Emissions Reduction Market issued in 2024 by the General Office of the NEA and the General Office of the MEE, the two‑year transition period governing the linkage between GECs and CCERs will expire on 1 October 2026. Under the current rules, enterprises involved in deep offshore wind projects and concentrated solar power projects may choose to obtain GECs or apply for CCERs at their own discretion. The relevant authorities are expected to establish a clearer transitional framework for CCERs upon expiry of the transition period.

On the other hand, at the National Eco Environmental Protection Work Conference held in early 2026, the MEE Minister targeted “continuously increasing supply to the national voluntary greenhouse gas emissions trading market, and establishing a regulatory mechanism for voluntary emissions reduction projects and emission reductions” as a key task for 2026. In addition, as 2026 marks the first year of the 15th Five Year Plan period, the national carbon market is expected to bring additional energy intensive sectors such as petrochemicals, chemicals and building materials into its regulatory scope. This will indirectly expand demand for CCERs rendering regulatory updates not only necessary but increasingly inevitable. In line with this policy direction of deepening carbon market reform, not only the linkage rules between GECs and CCERs, but also potential adjustments to CCER offsetting ratios and further development of methodologies are expected in 2026, bringing CCERs further into the core of the market.

3. Full Implementation of CBAM as Trade Barriers Continue to Pose Regulatory Challenges

In early 2026, the global carbon market will enter a new critical window. The EU’s CBAM will end its transitional phase, with formal introduction of charging. Importers in six sectors — steel, aluminum, cement, fertilizers, electricity and hydrogen — will be required to purchase CBAM certificates, whose prices are directly linked to EU carbon prices. The scope of products covered by CBAM is also being progressively expanded.

Faced with escalation of international carbon border controls, China is expected to introduce new regulatory measures to address mounting external green compliance pressures. This trend is already visible in the first dedicated policy document on green trade issued by the Ministry of Commerce in late October 2025, the Implementation Opinions on Expanding Green Trade, and in the newly revised Foreign Trade Law, enacted by the Standing Committee of the National People’s Congress at the end of 2025 and scheduled to enter into force on 1 March 2026. The revised Foreign Trade Law calls for accelerating the establishment of a green trade system, encouraging the import and export of green and low carbon products, driving forward development of product standards, certification and labelling systems related to green trade, and strengthening international cooperation in this area. 

Green trade encompasses the import and export of green and low‑carbon products and technologies, as well as the integration of green and low‑carbon standards across the full supply chain — from product design and production to packaging and transportation. These elements correspond closely to the detailed requirements of CBAM and will help Chinese exporters respond more effectively to external green compliance requirements.

4. Carbon Market: Free and Paid Allocations Advance Further as Sectoral Expansion and Internationalization Take Shape

In the carbon emissions trading market, free allocation combined with paid allocation of allowances has been a widely acknowledged trend in recent years. This approach is expected to further take root in 2026 and be explicitly reflected in regulatory legislation. At the National Eco Environmental Protection Work Conference in early 2026, the MEE stated that key tasks for 2026 include revising the Administrative Measures for Carbon Emissions Trading and prudently advancing the combined use of free and paid allowance allocation. The current wording in the Administrative Measures for Carbon Emissions Trading provides that allowances are “primarily allocated for free, with paid allocations to be introduced in due course in line with relevant national requirements.” The upcoming revision is expected to further strengthen the role and effectiveness of paid allocations.

On the sectoral expansion front, the Proposals of the CPC Central Committee for Formulating the 15th Five Year Plan for National Economic and Social Development, issued in October 2025, call for “expanding the coverage of the national carbon emissions trading market.” As 2026 is the first year of the 15th Five Year Plan period, the MEE had already initiated preparatory work by the end of 2025 to extend the market’s coverage to sectors such as chemicals, petrochemicals, civil aviation and papermaking. In 2026, following the principle of “including each sector once it is ready,” the coverage of the carbon market is expected to be gradually expanded to these industries, laying the groundwork for substantially full coverage of major industrial emissions sectors by 2027. 

In terms of market opening and integration, 2026 is widely expected to become the first year of internationalization for China’s carbon market. In the 2026 report on eco environmental protection, the MEE explicitly identified the development of “administrative measures for cross border carbon trading” as one of the ministry’s key tasks for the year. In January 2026, relevant national authorities also convened a symposium on “establishing a regulatory regime for cross border trading and driving forward the international development of the voluntary carbon market,” which focused on international experience in cross border carbon trading and the key issues China faces at each stage of participation. Against the backdrop of China’s increasingly demanding emissions reduction targets, it is anticipated that, with the release of new rules on cross border carbon trading in 2026, exports of carbon credits will be subject to relatively strict oversight and control, to ensure that domestic emissions reduction resources are directed first and foremost toward meeting China's NDC commitments. 

5. PBOC Carbon Emission Reduction Support Tools to Be Expanded, Becoming a Key Driver for Economy Wide Low Carbon Transition

In 2025, green finance in China made further progress in standards alignment and product innovation. Coming into 2026, the PBOC issued in January the Announcement of the People’s Bank of China on Expanding the Scope of the Carbon Emission Reduction Support Tool to Support the Comprehensive Green Transformation of Economic and Social Development (the “Announcement”). The Announcement brings projects with direct carbon reduction effects — such as energy-saving retrofits, green upgrades and green low-carbon energy transitioning — within the scope of the Carbon Emission Reduction Support Tool. This marks the tool’s formal transition from a phased pilot into a long term, systemic and institutionalized core instrument of green finance. Since its launch in 2021, the Carbon Emission Reduction Support Tool has mainly focused on “inherently green” projects such as wind and solar power. The Announcement smashes this limitation by including energy saving upgrades and clean replacement projects in high carbon industries such as steel, chemicals and non ferrous metals within the scope of support. With “direct carbon reduction” as the key criterion, it covers both green transitions on the energy supply side (for example, distributed solar PV projects in industrial parks) and energy saving and efficiency improvements on the demand side (such as upgrades of energy intensive equipment). This signals an expansion from support for specific low-carbon sectors to coverage across the full spectrum of transition activities, for the first time bringing a wide range of technological retrofits, equipment renewals and process substitutions in traditional industries systematically within the PBOC's low-cost funding framework.

In essence, this expansion represents the institutionalization of transition finance principles at the level of monetary policy. In step with the PBOC’s move, green finance policies in 2026 are expected to reflect this more mature understanding: achieving carbon neutrality requires a low-carbon transition spanning both the supply and demand sides of the entire economy. For financial institutions, this not only creates new opportunities for green business, but also requires banks to build diversified portfolios of green assets and instruments that combine “pure green” and transition aligned activities.