Not every cloud has a silver lining – but Trump’s recent tariff hike on Chinese aluminum products, combined with the rollout of carbon border adjustment mechanisms in other major export markets, has created a strong financial incentive for this energy-intensive industry to accelerate its long-overdue green transition. Constant concerns over the security of raw material supplies only add to the urgency, pushing the sector to fast-track its shift in production processes. By tapping into China’s extensive non-ferrous metal recycling system, the industry can adopt shorter, lower-emission production routes based on recycled scrap.

China’s primary aluminum production emits more CO2 than the entire country of Indonesia. Chinese regulators have long classified aluminum manufacturing as a “dual-high” sector – high in energy consumption and emissions – alongside coal power, steel, and chemicals. Over the past decade, the sector has relied on the abundant, low-cost hydropower in China’s southwest to reduce its energy and carbon footprints. However, as Yunyou cautions, hydropower – once seen as a quick fix for the sector’s emissions problem – is no longer a reliable long-term solution.

To seize this decarbonization window, the sector must address the elephant in the room: its heavy dependence on outdated, inefficient, and often small-scale captive coal power plants. Built mostly in the early 2000s, these plants have long provided aluminum producers with cheap and stable electricity – but at a significant environmental cost. As Yunyou argues, phasing out the least efficient captive plants and retrofitting some for greater efficiency and flexibility could immediately curb the sector’s rising emissions and stay on track with China’s national carbon peaking goals.

I hope you enjoy this edition of the newsletter. If you’d like to write for us, drop us an email at contact@shuangtan.me.

Analysis: Why Trump’s Tariffs Are a Green Opportunity for Chinese Aluminum

Decarbonizing aluminum offers China a win-win solution for the climate crisis and geopolitical uncertainties.

By Yunyou Chen

Edited by Hongqiao Liu and Kevin Schoenmakers

China’s aluminum industry has a tariff problem. The country produces 60% of the world’s primary aluminum and is the world’s largest exporter of aluminum products. According to custom data, about 15% of those exports are going to the U.S. But, the recent U.S. tariff hike puts a steep 25% tariff on Chinese aluminum.

Moreover, the industry’s heavy reliance on imported bauxite – its key raw material – leaves it vulnerable to trade disruptions. China’s aluminum industry used to source mainly from Malaysia and Indonesia, but after those countries banned mining and restricted exports, it now predominantly sources from Guinea and Australia. Any supply interruptions would cause significant economic damage to the many industries in China that use aluminum for their products.

However, these geopolitical tensions also present an opportunity. The aluminum industry is carbon-intensive, emitting around 5% of the country’s total greenhouse gases. China has yet to establish an official decarbonization roadmap for the aluminum sector, but experts from the Non-Ferrous Metal Association optimistically anticipate that carbon emissions will peak this year. Decarbonizing the sector would not only contribute to China’s dual carbon climate goals but also minimize the climate impact of clean energy products that use aluminum, such as solar and wind power plants, transmission and distribution grids, and electric vehicles.

China could turn the American tariff challenge into a green opportunity. The new import barriers will reshape global trade flows, and allow the Chinese aluminum sector to redirect its trade with the U.S. to more climate-conscious markets such as Australia, the U.K., and Southeast Asian countries. These are among China’s top destinations for aluminum products today and also have mechanisms favorable to decarbonization. For instance, Australia is reviewing the feasibility of a Carbon Border Adjustment Mechanism (CBAM), Thailand is drafting a climate change bill incorporating CBAM, and the U.K. plans to implement its own CBAM by 2027. These emerging carbon border policies, which impose levies on products with high carbon footprints, could incentivize Chinese aluminum companies to continue lowering their emissions.

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The newsletter is curated, written, and edited by Hongqiao Liu, with additional editing by Kevin Schoenmakers.

One way to cut emissions would be shifting to more circular production processes that use recycled scrap. This would also allow the Chinese aluminum sector to reduce its dependence on imported bauxite. Scrap-based aluminum making – or secondary aluminum production – avoids energy-intensive processes such as alumina refining and aluminum smelting, and could lower emissions by over 95%.

There is a growing supply of recyclable resources. China is experiencing a surge in end-of-life vehicles and building materials such as aluminum facades, roofs, and doors. Yet, recycling capacity remains insufficient to fully tap into this potential. As a result, despite the abundance of scrap and its substantial emissions savings potential, recycled aluminum still accounts for less than 30% of total input.

Apart from shifting to a more circular aluminum production process, China’s aluminum sector must cut its reliance on coal. Smelting, which consumes 7% of the nation’s electricity, relies on coal for 70% of its power supply – 12 percentage points higher than the national average.

Today, many Chinese aluminum companies operate their own so-called captive coal plants to power their smelting facilities. Their total capacity is 80 GW, or 6% of China’s total installed coal power capacity. In top-producing provinces like Shandong, Xinjiang, and Inner Mongolia, smelters rely almost entirely on these captive plants. Despite ongoing retrofit efforts, over half of this capacity still runs on inefficient subcritical combustion and often lacks basic emission controls like dust removal, desulfurization, or denitrification.

Phasing out captive coal, repurposing plants for backup and grid flexibility, or replacing them with onsite renewables could yield major emissions cuts. According to Transition Asia’s estimates, captive coal plants accounted for nearly 75% of aluminum smelting’s electricity-related emissions in 2021. Without deep retrofits or fuel switching, the emissions from these plants could not peak for another 15 to 20 years, even as the sector achieves carbon footprint reductions elsewhere.

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In response to China’s strict dual-control policy aimed at reducing energy use and intensity, many aluminum smelters have relocated to Yunnan over the past decade, attracted by its cheaper and cleaner hydropower. China Hongqiao Group, the country’s second-largest aluminum producer, has moved over 60% of its smelting capacity there. However, hydropower is no longer a reliable long-term decarbonization solution for the sector. Climate change-driven droughts have increasingly disrupted production, as the reduced hydropower output is prioritized to meet essential public needs, such as residential and agricultural use.

Looking ahead, stronger policy signals can further accelerate the aluminum industry’s green transition. In recent years, China has introduced measures aimed at cutting emissions, improving energy efficiency, and promoting cleaner energy use in aluminum production. The National Development and Reform Commission – the state planner – has set minimum green electricity usage targets for aluminum smelting by province for 2024 and 2025.

Stricter environmental regulations are also raising the cost of coal-fired power, incentivizing smelters to seek cleaner and more affordable power sources and reduce their consumption. For instance, the tiered electricity pricing system introduced in 2013 imposed higher electricity rates on companies, such as smelters, with higher electricity intensity.

China’s power sector Emissions Trading System (ETS) already covers most captive coal plants, and the recent inclusion of the aluminum sector signals growing carbon costs, particularly for small and outdated smelters. However, to become a true game-changer, the ETS must evolve to reward low-carbon producers and penalize high-carbon ones, setting stricter benchmarks, and moving toward an auction based system for allowances.

China’s abundant green resources and rapidly-evolving green technologies present significant decarbonization opportunities for the aluminium sector. Perhaps the current international trade turbulence could be the push it needs to adopt them.

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If you’d like to write for Shuang Tan, republish our articles, or submit a testimonial, email us at contact@shuangtan.me.

Until next week,

Hongqiao

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Shuang Tan is a proud partner of Covering Climate Now, a journalism collaboration dedicated to improving the caliber and prominence of climate journalism.

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Yingzhi worked with both the private and public sectors in Europe, Asia, and North America to accelerate their climate and biodiversity ambitions, and previously served as the Deputy Director of the Green BRI Center at the Beijing-based International Institute of Green Finance, an internationally renowned Chinese think tank on sustainable finance.

In this article, Yingzhi offers a clear and insightful analysis of two market-based mechanisms that will impose a carbon price on both domestic and international aviation activities: China’s national Emissions Trading System (ETS) for domestic aviation, and the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) for international flights, which are not covered by the Paris Agreement.

While aviation’s absolute emissions appear almost negligible compared to other hard-to-abate sectors such as coal power, steel, and aluminum, the sector faces unique challenges. Decarbonization technologies are complex to develop and costly to deploy while the growing demand for air travel drives emissions to soar. This explains why, at the very beginning of the conception of a national ETS, China’s state planner National Development and Reform Commission identified aviation as one of the eight key industries to be included in the new carbon market.

Will the two carbon pricing schemes accelerate the decarbonization of China’s aviation sector? There is some positive evidence. As Yingzhi writes, pre-pandemic data from Guangzhou’s ETS pilot showed emissions declined despite rising activity levels.

However, as with all carbon pricing mechanisms, the devil is in the details. (In case you missed it: Simon Göß wrote an excellent reflection on carboneer’s experience of helping 30+ Chinese suppliers comply with the EU’s Carbon Border Adjustment Mechanism.)

Implementing complex market-based regulations requires accurate emissions tracking, which can only be built on aviation companies’ enhanced carbon management capacities. To demonstrate genuine decarbonization efforts, they must also develop Paris-aligned transition plans, which, for now, are absent.

Moreover, truthful compliance, particularly with CORSIA, would require an entire support ecosystem. At a minimum, this means having capable carbon accounting service providers, adequate suppliers of high-quality carbon credits that uphold environmental and social integrity, and third-party certificate authorities that shield companies from fraud and greenwashing. 

Additionally, achieving deeper decarbonization in aviation will require increased investment in low-carbon technologies from both government and industry. While it may sound like a familiar refrain, many are pinning their hopes on Sustainable Aviation Fuels (SAF) and China’s well-tested ability to scale up production.

The more important question is, as one of the world’s largest aviation emitters, can China drive the global efforts to reduce global aviation emissions?

I hope you enjoy this newsletter. Have a different perspective? Share your thoughts in the comments. If you’d like to write for Shuang Tan, republish our articles, or submit a testimonial, email us at contact@shuangtan.me.

Until next week,

Hongqiao

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Carbon Pricing, Chinese Aviation’s Inevitable Destination

Facing the dual pressures of integrating national and international carbon pricing programs, China's aviation industry must start acting now. 

By Yingzhi Sarah Tang

China is committed to carbon peaking by 2030. But with the country’s domestic and international travel forecast to increase, one sector is set to fly right past that deadline: aviation.

Flying is energy-intensive yet hard to decarbonize. The most promising solution in the near term – replacing petroleum-based jet fuels with Sustainable Aviation Fuels (SAF) – faces cost and production constraints. Other abatement options, such as hydrogen and electric aircraft, are still in early development.

Today, the sector accounts for less than 1% of China’s total emissions.1 But emissions are set to grow given the country’s strong demand for air travel. The International Energy Agency has cautioned the country to “reconcile its ambition of developing its aviation industry with its climate policies.”

China’s aviation sector will soon need to comply with two carbon pricing mechanisms: the China national carbon market, where their domestic aviation activities will be regulated alongside high-emitting coal power, and the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), in which they must offset their emissions from international flights.

How will the two carbon pricing schemes impact the Chinese aviation sector? Can they accelerate sustainable aviation development and help China achieve its climate goals?

Domestic regime: China’s National ETS

Despite a negligible share, the aviation sector has been a focus of Beijing’s decarbonization agenda. It was one of eight sectors the National Development and Reform Commission, the state planner, decided to include in China’s national carbon emission trading scheme (ETS), alongside other notorious polluting sectors like coal power, steelmaking, and cement.

China’s ETS launched covering only the power sector. But as the carbon market celebrates its third anniversary, government and market stakeholders are accelerating the preparation for aviation’s inclusion.

Entering China’s national ETS could be a game changer for the aviation sector, pushing it to improve fuel efficiency while scaling up the adoption of low-carbon fuels.

Simply put, an ETS puts a price on carbon emissions and, therefore, incentivizes polluters to reduce emissions over time. The market-based mechanism allows abatement to happen where it is most cost-effective. Depending on the rulebook, entering the national ETS will bring down the aviation sector’s emission intensity, absolute emissions, or both.

Being part of an ETS will also shift the aviation sector’s approach to climate mitigation from buying carbon credits to voluntarily offset emissions, a gesture to show social responsibility, to prioritizing substantial emission reduction in its activities, an obligation to meet compliance constraints and manage carbon risks.

The EU ETS has successfully demonstrated such an impact. Since 2012, the carbon pricing scheme has led to 17 million tonnes of annual emission reduction from aviation activities within the European Economic Area (EEA), a drop of around 11%. As the EU ETS gradually phases out free allocation and transitions to full auctioning from 2026 onward, it will create even stronger incentives for the EU’s aviation sector to reduce their emissions.

Inside China, three ETS pilots in Guangdong, Shanghai, and Tianjin that cover the aviation sector have also delivered similar effects.

(To explore different carbon pricing mechanisms, China permitted eight regional pilots before officially introducing the national carbon market. Destined to be integrated into the national ETS, the regional pilots are currently running in parallel with the national market.)

For instance, the Guangdong pilot, which has covered domestic aviation since 2016, now includes four airlines, including China’s biggest – China Southern. Pre-pandemic data shows the covered airlines saw a 3.1% year-on-year emission reduction in 2018.

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International regime: CORSIA

While the timeline for entering the China national ETS remains unclear, it is certain that, starting in 2027, Chinese airlines will have to comply with another carbon pricing scheme – Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), an initiative of the UN agency International Civil Aviation Organization (ICAO).

Introduced in 2016, CORSIA is the world’s first regulatory, market-based mechanism specific to international aviation, an activity neglected by the Paris Agreement.

As China has gone global, Chinese airlines have emerged as major emitters in international aviation. Between 2015 and 2019, their aggregate emissions from international flights ranked third globally – although only reaching 40% of the levels of the United States.

Aspiring to foster sustainable growth in global civil aviation, the ICAO introduced a target in 2019, urging its member states to “achieve carbon-neutral growth from 2020 onwards.”

China, an ICAO member state, openly opposed the target, arguing it “goes at the expense of the legitimate rights to the development of developing countries and emerging market countries.”

CORSIA tackles airlines’ residual CO2 emissions after they have implemented various abatement measures, such as fuel efficiency improvements and SAF substitutions.2 Under CORSIA, airlines use eligible carbon credits, or “emissions units,” to offset any CO2 emissions above the baseline from international flights.

In practice, covered airlines must offset a given percentage of their CO2 emissions from international flights every year. From 2021 to 2032, this percentage only reflects the international aviation sector’s global average growth of emissions in a given year, known as the sector’s growth factor. From 2033 to 2035, an airline’s individual growth factor will determine 15% of its offsetting requirement.3

ICAO’s figure below illustrates how this percentage is calculated:

CORSIA is implemented in three phases:

China did not volunteer to participate in CORSIA’s Pilot Phase and First Phase. The Second Phase, however, is mandatory for all ICAO member states, including China.

Complying with CORSIA’s provisions would require major Chinese airlines to balance growing their international aviation while delivering long-term climate targets.

But with less than three years remaining before CORSIA enters the Second Phase, it is unclear how prepared Chinese airlines are. Even the “big three” – China Southern, China Eastern, and Air China – have yet to announce any public plans besides acknowledging that they are aware and will comply.

To ensure transparency, the ICAO introduced a mandatory Measurement, Reporting, and Verification (MRV) policy in 2018. Except for a few exemptions, all airlines had to start submitting their CO2 emissions from international flights in 2019, regardless of their current participation status. This should mean Chinese airlines have been submitting their emissions from international flights to ICAO for the past five years.

In 2018, CAAC, the Chinese regulator, introduced an interim measure on MRV, followed by a guide and a template in 2020. CAAC asks airlines to submit an annual CO2 emission report, which also covers their annual consumption of SAF. Chinese airlines supposedly comply with CAAC rules. Interestingly, this MRV requirement lays some groundwork for China’s national ETS.

While CORSIA poses a new compliance challenge to Chinese airlines, it also creates some opportunities for China’s carbon offset market. During the Pilot Phase, ICAO recognized certain carbon credits from China’s voluntary emission reduction scheme – China Certified Emission Reductions (CCERs).

However, CCERs are not included in the list of eligible credits for the First Phase. Should CCERs become eligible again – which is likely following the relaunch of CCERs in 2024 – the new international carbon offsetting scheme could attract international capital to support carbon reduction and removal activities inside China.

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The Path Forward 

The inevitable domestic and international carbon pricing regimes pressure the aviation sector in China to rethink its growth trajectory. For this hard-to-abate sector, it is a delicate balance between growing aviation activities, which stimulate the economy, and achieving carbon neutrality.

Due to the hard-to-abate nature of their activities, airlines typically purchase offsets from voluntary carbon markets as compensation rather than directly reducing their own emissions. The lack of fungibility – “a tonne is a tonne is a tonne” – in carbon offsets and oversight in the voluntary carbon markets have led to inconsistencies and fraud. 

Despite the controversies surrounding fraudulent practices and greenwashing allegations, offsetting remains a valid approach to compensate for emissions that cannot be cost-effectively abated with current technologies.

However, as a safeguard measure to limit the worst impacts of climate change, offsetting must come at the last of the mitigation hierarchy. In other words, companies must prioritize measures that avoid and mitigate their climate impacts along their value chain over offsetting. Many sustainability standards bodies, such as the Carbon Disclosure Project and the Science-Based Targets Initiative, have adopted this principle. 

To prepare for the regimes, multiple stakeholders can act now.

A robust MRV system is paramount to the success of both regimes. Regulators such as CAAC should periodically review and update the 2020 MRV guide and template, borrowing the latest good practices cited by ICAO and implemented in other jurisdictions such as the EU. To enhance transparency, CAAC and Chinese airlines can also launch a public and accessible emission data tracker.

Improving fuel efficiency and exploring the use of SAF, as mentioned in CAAC’s 14th Five-Year Green Development Plan, are immediate steps airlines can take. In its latest Nationally Determined Contributions (NDCs), the Chinese government commits to support R&D of low-carbon aviation fuels. In China’s next NDC update, forthcoming in 2025, a quantitative target such as mandating SAF to be above a certain threshold in aviation fuel blend would catalyze more supply and demand.

A few Chinese biofuel companies are planning to trial SAF production. Government subsidies, similar to the Inflation Reduction Act (IRA) in the U.S. (which has approximately $3.3 billion in tax credits for SAF), will help SAF production to take off. Airlines can also commit long-term purchase agreements to provide market certainty.

In the long run, technologies will play a critical role in accelerating the low-carbon transition in aviation. For example, channeling public and private investment into R&D of new generations of low-carbon aircraft and advanced battery systems could unlock new emission reductions.

With the Second Phase on the horizon, Chinese airlines should start looking into the CORSIA-eligible crediting programs and methodologies to prepare for compliance. 

In principle, they should only purchase high-quality offsets from credible projects such as those with Core Carbon Principles labeling. They should also consider prioritizing offsetting projects inside China, such as afforestation, clean energy, and waste management projects to bolster climate and nature actions closer to home.

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