Different Approaches, Similar Effects? A Comparative Study of the Chinese and European Union Emissions Trading System

Keywords: ETS; energy transition; comparative analysis; technology and standards; policy and regulation | Study published: July 2025

As the world races to curb greenhouse gas emissions, Emissions Trading Systems (ETS) have emerged as a cornerstone of climate policy. EU launched the world’s first major ETS in 2005 and has since refined it into a central pillar of its climate strategy. In contrast, China—the world’s largest emitter—launched its national ETS in 2021.  With careful design and continued refinement, China has the opportunity to transform its carbon market into a powerful tool for sustainable development and climate leadership.

Key Findings

• The EU ETS uses a cap-and-trade system with a fixed emissions cap, reducing covered sector emissions by 47% since 2005.

• China’s national ETS operates as a baseline-and-credit system without an emissions cap, showing moderate emission intensity reductions of 2.4% in thermal power from 2018–2023.

• The EU ETS covers multiple sectors and greenhouse gases, while China’s ETS currently covers mainly the power sector but will expand to energy-intensive industries by 2026, covering about 70% of CO₂ emissions.

• Carbon prices in January 2025 averaged EUR 76.9/tCO₂-eq in the EU, compared to EUR 12.6/tCO₂-eq in China’s ETS.

• China’s ETS relies fully on free allocation, generating no state revenue, unlike the EU ETS which uses auctioning.

• Transitioning China’s ETS towards auction-based allocation and market stability mechanisms could improve price signals and generate climate funding.

Different approaches, similar effects? A comparative study of the Chinese and European Union Emissions Trading System