China's securities regulator has signaled that carbon emission allowance futures are moving closer to launch, with rule design work at the Guangzhou Futures Exchange (GFEX) set to be refined.

The China Securities Regulatory Commission (CSRC) said on September 18 it will further guide GFEX in conducting extensive research and improving the rule design for carbon emission allowance contracts, and will study launching carbon-related futures when conditions are ripe. The statement marks an acceleration in the listing process for carbon emission allowance futures, with the financialization of the carbon market entering a substantive institutional preparation phase.

Institutional groundwork has been accumulating for years. GFEX, at its inception, laid out plans for 16 products, with carbon emission allowance futures ranking first among major strategic products. Cao Zihai, deputy general manager of GFEX, said research and development of major strategic products including carbon emission allowance has made breakthrough progress.

Meanwhile, efforts to bring financial institutions into the market are advancing in parallel. At the 2026 China Carbon Market Conference, a relevant official from the Ministry of Ecology and Environment said China will establish and improve policies on carbon pledges and carbon repurchases, and introduce banks, securities firms and other non-compliance entities to participate in market trading. A representative from the People's Bank of China said the central bank has set up an 80 billion yuan carbon emission reduction support tool to help banks explore carbon allowance pledge loans and repurchase financing, and is studying rules and supporting clearing and settlement mechanisms for financial institutions' participation in carbon market trading.

The launch of carbon futures will directly change the current pricing logic of the carbon market. A research report released by Tsinghua University in September 2026 showed that the annual turnover rate of the national carbon market remained below 5% from 2021 to 2025, with trading activity highly concentrated during the compliance settlement period, showing an obvious "tidal" pattern. After the introduction of carbon futures, the continuity and transparency of forward price signals will be greatly improved, and carbon prices are expected to shift from "spot pricing" to "futures-led."

Taking the European Union market as a reference, ICE's EUA futures and options are the world's most liquid carbon derivatives market. In 2025, ICE's environmental futures and options contracts hit a record 20.9 million lots, and on January 20, 2026, single-day trading volume in the EUA market reached 193,000 lots. This level of liquidity is exactly what the domestic market hopes to achieve through futures tools.

The entry of financial institutions will change the participation structure of the carbon market. As of March 2026, 25 securities firms had been approved to participate in carbon emission allowance trading. The national carbon market is currently dominated by compliance companies, with high trading concentration and uneven liquidity. Introducing professional institutions such as securities firms is seen as helping boost market vitality and improve the price discovery mechanism. But the participation of financial institutions is also a double-edged sword, as increased liquidity brings rising speculative risk.

At the contract design level, the choice of underlying asset is the core controversy. The trade-off between carbon emission allowances and CCER requires weighing market coverage, liquidity and delivery convenience. Carbon futures products on major overseas exchanges use carbon allowances as the core underlying asset, with physical delivery as the main settlement method, but since carbon assets have no storage cost, delivery can be completed automatically through electronic means. Domestic carbon emission allowance futures contracts are expected to introduce strict position limits and price limit mechanisms to prevent market manipulation and excessive speculation.

Coordination between carbon futures and power futures also deserves attention. The power generation industry is the only sector currently included in the national carbon market, and there is a natural transmission relationship between carbon costs and electricity prices. Some power generators have begun exploring strategic coordination between carbon asset management and power spot trading. How to leave room for cross-product arbitrage and risk management in contract design will be an important issue for GFEX.

Overall, the launch of carbon emission allowance futures is a key step for China's carbon market to move from spot trading toward forward pricing. Institutional preparations are basically in place, but the finalization of contract rules, specific arrangements for financial institutions' market entry and the design of cross-product coordination mechanisms still need to be gradually improved through research and demonstration.