The Open Coalition on Compliance Carbon Markets has moved from launch to implementation, establishing its institutional framework at a high-level meeting in Wuhan, Hubei province, on September 14.

Nearly 100 delegates from 14 countries and regions, including China, Brazil, the European Union, Germany, the United Kingdom and South Korea, and 14 international organizations such as the World Bank and the International Emissions Trading Association attended the meeting, which approved the alliance's work plan and secretariat rules.

Chinese Minister of Ecology and Environment Huang Runqiu told the subsequent 2026 China Carbon Market Conference that the alliance had established its rules in Wuhan and would further expand its membership, "promoting mutual learning among countries and better using carbon market mechanisms to achieve global green and low-carbon transition". The mechanism was jointly launched by China, Brazil and the EU during the UN climate conference in Belem in November 2025 and currently has 11 members and 18 observers.

The meeting set out the alliance's next steps. Parties agreed to deepen dialogue and cooperation, improve monitoring, reporting and verification (MRV) systems, build high-quality carbon credit offset mechanisms and gradually explore coordination, linkage and mutual recognition of carbon market mechanisms. The cooperation is shifting from principled initiatives to technical-level institutional alignment.

Jiang Ying, a member of the National Committee of the Chinese People's Political Consultative Conference and Deloitte China chair, said during this year's Two Sessions that China's carbon market has structural differences from mature international systems in MRV completeness, accounting boundaries and carbon pricing mechanisms. "These differences are directly translated into carbon price top-up costs and compliance uncertainty for companies under the CBAM framework," she said.

Meanwhile, the EU's Carbon Border Adjustment Mechanism (CBAM) entered full implementation on January 1, 2026. EU importers must purchase CBAM certificates from 2027 for steel, cement, aluminum and other products imported in 2026, with declaration and settlement completed by September 30 each year.

In May 2026, the European Commission published a draft rule on deductions for carbon prices already paid in third countries, requiring that deductible carbon prices be mandatory, general and impose compliance obligations on operators. The deduction is calculated by dividing the carbon price paid per tonne of product in the third country by the annual average price of a CBAM certificate, then multiplying by the quantity of imported products.

Whether the deduction rule can function effectively depends on the institutional conditions of China's carbon market. The CBAM certificate price was 75.36 euros/t in the first quarter of 2026, while China's national carbon market allowance price was about 79.5 yuan/t, equivalent to about 10 euros — a gap of roughly seven times.

Because China's carbon market allowances are currently mostly allocated for free, the EU may not recognize Chinese companies' domestic compliance costs for CBAM deduction purposes. Estimates by carbon market research institutions show that even under full recognition, the steel sector could offset only about 8% of CBAM costs on average.

In terms of implementation pace, the short-term impact is manageable but pressure will rise gradually. For the steel sector, the CBAM factor is only 2.5% in 2026, with an additional cost of about 3.75 euros/t. By 2034, when free allowances are fully phased out, the additional cost for blast furnace steel will rise to 140-160 euros/t.

In 2028, CBAM will expand to downstream products including machinery and auto parts, and indirect emissions from purchased electricity will be fully included in accounting, raising the share of affected products to 25-35% of China's total exports to Europe.

China's direction for carbon market institutional improvement is clear. The National Center for Climate Change Strategy is drafting cross-border carbon trading management measures, comprising six chapters and 29 articles, which have entered the public consultation stage.

The Ministry of Ecology and Environment has confirmed the national carbon market will expand to the petrochemical and chemical sectors. Shenzhen has conducted paid auction of 2025 carbon emission allowances. Under current policy arrangements, paid allocation will be formally implemented in 2027, and a market combining free and paid allowance allocation will be established by 2030.

Carbon price mutual recognition is not simply a matter of price convergence but involves a series of institutional arrangements including MRV system alignment, allowance allocation reform and improvement of carbon financial instruments. The Open Coalition provides a platform for multilateral dialogue, but substantial technical work remains from building the institutional framework to achieving substantive mutual recognition.

For Chinese exporters, understanding CBAM's deduction formula and certification requirements and tracking the pace of domestic carbon market reform are practical starting points for coping with rising carbon cost pressure.