Three pathways to unlock China’s full potential As China’s carbon market gains momentum, three strategic pathways strengthen its role in global climate governance: harnessing data and technology, unlocking financial potential and building policy synergies. These interconnected pathways can drive innovation, enhance efficiency and offer insights for emerging markets seeking market-based decarbonization. Harnessing data and technology Data and technology are vital for accelerating the growth of China’s carbon market. In conjunction with adequate protection of intellectual property rights, three core levers can drive enhanced transparency, efficiency and scalability. –Harmonization of standards for digitalization: aligning accounting standards, emissions factors and monitoring protocols across local, national and international levels will ensure consistency and enable digitalization. –Digital tech-empowered MRV: advanced technologies, including AIoT (Artificial Intelligence + Internet of Things), blockchain, advanced robotics and satellite sensing, optimized for diverse applications such as ETS-regulated facilities and CCER projects, can overcome cost and efficiency barriers. –Cross-value chain data infrastructure: robust data governance and technologies such as blockchain and privacy computing break silos, enabling secure data flows across value chains, empowering use cases such as compliance, trade and supply chain management. Unlocking financial potential Initially focused on decarbonization, China’s carbon market aims to evolve into a dynamic financial instrument post-peak emissions, enhancing liquidity and price discovery. Key opportunities for this evolution include: –Diverse participants: non-regulated entities, such as financial institutions, investors and sustainability-focused corporations, can invigorate market dynamics. Clear guidelines would enable these players to boost liquidity while maintaining emissions reduction integrity. –Harmonized carbon credit standards: transparent, streamlined standards and approval processes balance integrity with accessibility for VCMs, reducing uncertainties, mitigating market risks and encouraging broad market engagement. To enhance global interoperability, aligning China’s CCER with international frameworks – such as the Integrity Council for the Voluntary Carbon Market (ICVCM) and Article 6 of the Paris Agreement – would facilitate cross-border recognition and trading. This linkage is particularly critical for derivatives. For futures, forwards and options to be viable, high volume, liquidity and clear, transparent markets for voluntary carbon credits traded on the spot are needed. –Diversified financial instruments: standardized, tradable carbon futures and options ensure better risk management and price discovery, while meeting compliance needs in carbon markets. Complementary tools such as green bonds and carbon asset-backed financing also help attract more investment by making it easier to fund low-carbon projects. Building policy synergies China’s carbon market exists within a robust policy framework, but its potential hinges on deeper cross- disciplinary collaboration in areas such as industry, energy, product sustainability and green financing. Integrating tools such as green certificates with carbon credits and aligning organizational-level and product-level carbon accounting can unify standards and goals, reduce compliance costs and avoid conflicting decarbonization efforts. This kind of smart institutional design creates synergies between policy frameworks, helping accelerate the low-carbon transition. Additional policy opportunities include: –Harmonizing carbon market rules with complementary industry policies to create a cohesive data ecosystem. –Coordinating industrial and financing policies to support carbon pricing. –Channelling carbon revenues into green investments to bolster low-carbon projects. –Providing supply-side support for innovative, first-of-a-kind emissions reduction and removal projects – such as through contracts for difference, subsidies and tax breaks – to accelerate their development and growth. Asia’s Carbon Markets: Strategic Imperatives for Corporations 15

Asia's Carbon Markets Strategic Imperatives for Corporations 2025