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China’s new three-year industrial energy-saving and carbon-reduction plan sets binding targets for key sectors and creates new demand for efficiency, waste heat recovery, and low-carbon technologies.
On June 15, 2026, the Three-Year Action Plan for Energy-Saving and Carbon-Reduction Transformation in Key Industries was released by five central government agencies: the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Ecology and Environment, the State-owned Assets Supervision and Administration Commission, and the National Energy Administration. The document marks a turning point in China’s industrial energy conservation and carbon-reduction efforts, shifting from voluntary guidelines to binding targets and from optional initiatives to mandatory requirements.
Hard Targets: Save 100 Million Tons of Coal and Cut 200 Million Tons of CO₂ in Three Years
The Action Plan stipulates that, starting in 2026, a three-year comprehensive energy-saving and carbon-reduction transformation will be carried out across nine key industries: steel, electrolytic aluminum, cement, flat glass, oil refining, ethylene, synthetic ammonia, methanol, and coal-fired power generation.
By the end of 2028, the share of production capacity reaching the prevailing energy-efficiency benchmark level in key industrial sectors such as steel and electrolytic aluminum is expected to increase by an average of 20 percentage points, while the coal-power sector aims for a 15-percentage-point increase. By that time, capacity below the baseline energy-efficiency level is expected to be essentially eliminated, cumulatively generating energy savings of more than 100 million tons of standard coal and reducing CO₂ emissions by more than 200 million tons.
This target is built on a clear policy progression. During the first three years of the 14th Five-Year Plan period, China’s energy intensity fell by only about 7.3 percent, falling short of the 13.5 percent target. The energy-saving and carbon-reduction action plans for 2024–2025 represented the final sprint, while this three-year plan marks a dedicated industrial offensive at the start of the 15th Five-Year Plan period, shifting from short-term emergency response to medium- and long-term systematic action.
Hard Instruments: 20 Percent Subsidies, Differential Electricity Pricing, and Carbon Asset Incentives
To ensure the targets are met, the Action Plan deploys a combination of incentives and penalties.
Financial Support: The central government will provide funding subsidies equivalent to 20 percent of the approved total investment for eligible energy-saving and carbon-reduction transformation projects, with priority given to projects that achieve benchmark energy-efficiency levels after transformation.
Differential Electricity Pricing: Localities will integrate existing tiered electricity pricing, punitive tariffs, and differential pricing into a unified differential electricity pricing policy, with a surcharge of no more than RMB 0.1 per kilowatt-hour on top of market trading prices.
Carbon Asset Incentives: Carbon emission reductions achieved by existing enterprises through transformation, once verified, can be used as carbon emission substitution quotas for new “two-high” projects, referring to projects with high energy consumption and high emissions. Enterprises included in the national carbon market that outperform the benchmark in carbon intensity can receive reasonable quota returns.
Hard Red Lines: List-Based Phaseout of Outdated Capacity
The Action Plan specifies clear transformation red lines for outdated processes and facilities in each industry:
Steel: Blast furnaces below 1,200 m³, converters below 100 tons, or 50 tons for alloy steel, pelletizing units below 1.2 million tons per year, and other outdated facilities.
Electrolytic Aluminum: Prebaked anode aluminum electrolytic cells below 300 kA, independent aluminum carbon projects below 150,000 tons per year, and other outdated facilities.
Cement: Cement grinding stations below 600,000 tons per year.
Oil Refining and Ethylene: Atmospheric and vacuum distillation units below 10 million tons per year, catalytic cracking units below 1.5 million tons per year, and other outdated facilities.
Methanol and Synthetic Ammonia: Natural-gas-to-methanol units below 300,000 tons per year, coal-to-methanol units below 1 million tons per year, and other outdated facilities.
Coal-Fired Power: For existing units of 300 MW and above, the net coal consumption rate for power supply must be reduced by at least 5 grams of standard coal per kWh after transformation.
“This is not simply about elimination; rather, it grants enterprises a three-year transformation window,” said an industry expert. The end of 2028 is the final deadline. Projects that fail to complete the transformation on time or still fail to meet requirements afterward will be phased out and shut down in accordance with regulations.
Hard Demand: Four Technology Areas Set for Growth
The plan not only imposes constraints but also creates opportunities, directly driving market demand in related technology fields. The following four areas are widely expected to see clear demand growth:
Energy-Saving Equipment: The Action Plan requires all industries to accelerate the upgrading of energy-using equipment such as motors, fans, pumps, heat pumps, boilers, air compressors, and transformers.
Waste Heat Recovery: The steel industry is required to implement retrofitting and upgrading of waste heat recovery and waste energy power generation, while strengthening the recovery and utilization of byproduct gas, waste heat, and residual pressure. The electrolytic aluminum industry needs to optimize systems for efficient recovery and cascade utilization of flue gas waste heat and promote the application of low-temperature waste heat power generation technologies.
Hydrogen Metallurgy: The steel industry is required to carry out the application of hydrogen metallurgy and other technologies in an orderly manner. China’s first million-ton-scale near-zero-carbon steel production line has been fully commissioned.
High-Efficiency Motors: As major industrial energy consumers, motors are a key focus of this round of equipment upgrades and are repeatedly mentioned in the tasks for various industries.
Far-Reaching Impact: A Profound Supply-Side Reform
From a broader perspective, this policy push will have a significant impact on China’s manufacturing sector:
The Supply Landscape will be Reshaped: The list-based phaseout of outdated capacity will drive industry consolidation.
Corporate Profit Models will be Upgraded: As outdated capacity is phased out and supply tightens, industries are likely to move away from low-price competition. Carbon emission reductions achieved through transformation can serve as tradable green assets in the carbon market.
Green and Low-Carbon Development will Become a Core Competitive Edge: As the NDRC emphasized, this is “not a temporary expedient but a long-term strategy; not a passive response but proactive action.”
Further Expansion will Continue After 2028: The Action Plan explicitly states that from 2028 onward, the scope of implementation may be expanded further based on actual conditions, with additional industries included on a rolling basis.
From the comprehensive deployment during 2024–2025 to the focused industrial offensive during 2026–2028, China is advancing its industrial system from quantitative expansion to qualitative improvement through a layered and progressive policy tempo. The implementation of this policy is injecting strong green momentum into the high-quality development of China’s manufacturing industry.