On 28 September 2026 the Ministry of Finance (MOF) issued for comment an application guide to its Corporate Sustainability Disclosure Standard No. 1: Climate (Trial), together with industry guides for nine sectors: power, steel, coal, oil, fertiliser, aluminium, hydrogen, cement and automotive. Comments are due by 26 October 2026. Most first readings will treat the package as a longer list of indicators. We read it differently. For the four sectors already inside the national carbon market, power, steel, cement and aluminium, a single compliance indicator quietly turns carbon into an accounting estimate, and that changes who in the company should own it.
In each of those four guides the compliance indicator says an enterprise may disclose emissions within the controlled boundary, the allowances it must surrender, the allowances actually surrendered, and the share and volume offset with China Certified Emission Reductions (CCERs). Inside that same indicator, the power guide adds one sentence: disclose the allowance surplus or shortfall in tonnes and, where the final allowance has not been determined at the end of the reporting period, the estimated shortfall or surplus as at period-end and the basis on which it was determined. The steel, cement and aluminium guides contain no such sentence.
Our view: The draft guides treat the carbon allowance gap as a disclosure line, but under the 2026 allocation design it is really a period-end estimate. The power guide says an enterprise may disclose an estimated shortfall or surplus and its basis where the final allowance is not yet set. The steel, cement and aluminium guides do not contain that sentence, even though those sectors' 2026 allowances depend on an industry balance value. Whatever wording survives the consultation, the estimate should be made once, in the year-end close and owned by finance, then carried unchanged into the sustainability report and, for Hong Kong-listed issuers, into the Part D discussion of financial effects.
An allowance gap estimate is an issuer's period-end judgement of the difference between the carbon allowances it expects to be allocated for a compliance year and the allowances it will have to surrender for that year's verified emissions, together with the assumptions behind that judgement. A balance value is the industry-level carbon intensity at which, under the Ministry of Ecology and Environment (MEE) allocation method for 2026, total allowances for a sector equal its total verified emissions. Each plant's allowance is then set by how far its own intensity sits above or below that line.
What the Ministry has actually put on the table
The package has three parts. A general application guide in five chapters covers climate-related impacts, strategy and financial effects, risk and opportunity management, greenhouse gas accounting, and the link to sector metrics. Nine industry guides share one frame: scope, sector risks and opportunities, their financial effects, typical emission sources, and sector metrics and targets. A drafting note explains the process. Since July, the MOF says it sought targeted views from nine government departments, nine industry associations and research institutions and thirty leading enterprises, and received more than two hundred comments before this public round.
The legal status deserves precision. The Climate Standard itself (Cai Kuai [2025] No. 34, dated 19 December 2025) is applied voluntarily until its scope and requirements are specified. The guides would not, on their own, create an obligation. That does not make them academic. Since the exchange sustainability guidelines took effect, constituents of the SSE 180, STAR 50, SZSE 100 and ChiNext indices, and companies listed both onshore and offshore, had to publish their first 2025 sustainability reports by 30 April 2026. Those companies now have a sector-level reference point from the standard-setter itself, and we expect analysts, rating providers and assurance teams to start reading reports against it well before any mandate arrives.
Several practical details in the general guide will save arguments. Scenario analysis may follow the strategic planning cycle, for example every three to five years, provided climate resilience is still assessed every year. Where purchased heat cannot be traced to a supplier factor, a recommended factor of 0.11 tCO2/GJ is given. Most useful of all, the guide proposes a mapping from climate event to business impact to financial effect to accounting line, and its own worked example links a carbon allowance shortfall to higher compliance cost booked against carbon emission rights assets and non-operating expenses. That example is where our reading begins.
How a 2026 allowance is set
The MEE allocation plan for 2025 and 2026 keeps the steel, cement and aluminium method unchanged from 2025. A plant's 2026 allowance equals its verified 2026 emissions multiplied by one plus an intensity coefficient. The coefficient is 0.15 times the plant's deviation from the industry balance value while that deviation sits between minus and plus 20 per cent, and is fixed at plus or minus 0.03 beyond it.
Picture a cement plant on 31 December. It may know its own clinker intensity reasonably well, though the figure is not yet verified. The balance value is calculated from the same year's verified results. If the issuer does not yet have those results, it can only estimate. At the time of writing the 2026 industry balance values have not been published, so a year-end estimate can rest only on the most recently published balance value as a proxy. The plan requires each emitter to surrender allowances for the previous year by 31 December. The steel, cement and aluminium guides refer to the most recent compliance cycle.
On the capped coefficient, that comes to about 97 to 103 per cent of verified emissions, leaving aside the special cases in which the allowance equals verified emissions, and the plan rounds the determined allowance down. The estimate is a judgement about direction and a narrow range, not a forecast of the carbon market. We would rather see an issuer state that it expects a modest shortfall on that reading, explain that it compared its unverified intensity with the most recent published balance value, and say when the figure will be confirmed, than publish a falsely precise tonne figure that a later true-up will contradict.
Power generation is different in scale. Benchmarks for 2025 and 2026 have been adjusted, gas-fired units are topped up to their verified emissions, and an emitter's shortfall rate is capped at 20 per cent of verified emissions, with any larger gap filled by additional allocation. For a coal-heavy generator, a shortfall approaching that cap is real money, and the estimate deserves the same rigour as any other year-end provision judgement.
Two documents, one set of tonnes
Our concern is less that the number will be wrong than that it will be produced in more than one document, by more than one team. The table shows where the same tonnes surface.
| Where the figure appears | What it records | When it becomes firm | Natural owner |
|---|---|---|---|
| Sustainability report under the draft industry guides | Allowances due and surrendered and CCER offset ratio and volume in all four sectors; the power guide says an enterprise may also disclose the surplus or shortfall and, where the allowance is not final, an estimate with its basis | When verification and final allocation are completed | Sustainability team as presenter |
| HKEX ESG report, Part D (H-share and red-chip issuers) | Current and anticipated financial effects of climate-related risks, including transition cost | At the reporting date, subject to reliefs where conditions are met | Finance with sustainability |
Whether a provision is required under the applicable accounting standards is a matter for the issuer and its auditor, and we do not pre-empt that judgement here. What we do insist on is consistency: whatever finance concludes at the close, the sustainability report must not tell a different story a few weeks later, and the Hong Kong ESG report must not tell a third.
Three ways the registry balance misleads
The first is pre-allocation. The plan provides that pre-allocated allowances are in principle 50 per cent of the previous year's verified emissions, and provinces may lower the ratio for emitters with compliance risk. A registry balance read in December mostly reflects that advance. Set against a full year of emissions it produces an apparent shortfall that is an artefact of timing.
The second is vintage. The plan states that 2019 to 2024 allowances may be used only to settle outstanding obligations for 2019 to 2024 and cannot be used for 2025 or later years, while 2025 and 2026 allowances may be used for 2025, 2026 and later years. Older holdings should not be counted as cover for the 2025 or 2026 gap. Where such holdings were purchased and sit on the balance sheet, their remaining use deserves an explicit conversation with the auditor.
The third is offsets. CCERs registered after the national voluntary market relaunched on 22 January 2024 may be used to offset surrender for 2025 and 2026, subject to MEE rules. Under the current rules, as the MEE's 2026 carbon market report records, offsets may not exceed 5 per cent of the allowances an emitter must surrender. Only eligible units within that ceiling should enter the estimate, and the basis note should say which rule was applied.
Where Hong Kong's Part D meets the mainland estimate
For financial years commencing on or after 1 January 2026, Hang Seng Composite LargeCap Index constituents report the Part D climate requirements of the HKEX ESG Code on a mandatory basis, while other Main Board issuers report them on a comply-or-explain basis and every issuer discloses Scope 1 and Scope 2 emissions. Part D asks for the current and anticipated financial effects of climate-related risks and opportunities. HKEX FAQ 17.2 confirms a financial effects relief that permits qualitative instead of quantitative information where specified conditions are met.
The mainland allocation design makes that relief easier to reason about. For an H-share steel or cement issuer, a shortfall of about three per cent of verified emissions may well be a case where a qualitative explanation, with the range and the basis, is the proportionate answer. For a coal-heavy generator facing a potential gap of up to a fifth of its emissions, we think leaning on the relief is much harder to defend, and a quantified range tied to the same price assumption that finance uses is the safer course. In both cases the A-share report, the Hong Kong ESG report and the board paper should carry one figure, one basis and one set of terms. The term allowance shortfall, and its equivalents in the Traditional and Simplified Chinese editions, should mean exactly the same thing in every document.
What we would do before 26 October and before the close
The consultation invites views on whether the scope of each guide is clear, whether the sector examples match industry practice, and how the sector metrics and targets could be improved. Issuers in the four carbon-market sectors have two concrete points to raise. Steel, cement and aluminium reporters can ask the MOF either to extend the power guide's estimate-and-basis sentence to their sectors or to confirm that they report only the most recent compliance cycle. All four can ask what basis the MOF expects for the estimate when the final allocation parameters have not been published, and whether the most recent published balance value or benchmark is an acceptable proxy. A clear answer now would spare every reporter the same argument with its assurance provider next spring.
Inside the company, put the allowance gap estimate on the year-end close calendar rather than the ESG drafting calendar. The output is a short basis memo signed by finance. It records the unverified intensity used, the proxy balance value and its date, the resulting coefficient range, any price assumption, eligible holdings by vintage and eligible CCERs. The sustainability team presents that figure; it does not recalculate it. When verification and final allocation are completed, the true-up and the variance explanation go into the following year's report, which is exactly how a well-run estimate behaves in the financial statements.
Teams whose carbon data still sits in a spreadsheet beside the ESG report will find that the guides have, in effect, asked them to bring it inside the close. Our ESG reporting and climate disclosure work, internal control and risk reviews and support for mainland HKEX issuers, together with financial translation and valuation support, are built around that hand-off.
Key dates and figures. 28 September 2026: date of the MOF consultation letter (Cai Ban Kuai [2026] No. 34), published on 30 September. 26 October 2026: comment deadline. 9: sector guides in the package. 97 to 103 per cent: the reading on the capped coefficient. 20 per cent: cap on a power emitter's shortfall rate. 50 per cent: pre-allocation ceiling relative to prior-year verified emissions. 5 per cent: current ceiling on CCER offsets as a share of allowances to be surrendered. 31 December: annual surrender deadline for the previous year's emissions.
FAQs
- What did China's Ministry of Finance publish on 28 September 2026?It issued for public comment an application guide to the Corporate Sustainability Disclosure Standard No. 1: Climate (Trial), together with industry application guides for nine sectors: power, steel, coal, oil, fertiliser, aluminium, hydrogen, cement and automotive. Comments are due by 26 October 2026.
- Are the MOF climate standard and its industry guides mandatory?Not yet. The Climate Standard issued in December 2025 is applied voluntarily until its scope and requirements are specified, and the guides are consultation drafts. Listed companies already reporting under the Shanghai, Shenzhen or Beijing exchange sustainability guidelines may nonetheless be read against them by investors and assurance providers.
- Why might a steel, cement or aluminium company have to estimate its 2026 carbon allowance?Under the MEE 2026 allocation method, each plant's allowance equals its verified emissions multiplied by one plus a coefficient based on its deviation from the industry balance value. On the capped coefficient that is about 97 to 103 per cent of verified emissions, subject to the special cases and to rounding down. Only the draft power guide adds a sentence on an estimate and its basis.
- Can 2019 to 2024 allowances be used for 2025 or 2026 compliance?No. The MEE allocation plan states that 2019 to 2024 allowances may be used only for outstanding 2019 to 2024 obligations and cannot be used for 2025 or later years, while 2025 and 2026 allowances may be used for 2025, 2026 and later years.
- How does the allowance gap estimate relate to HKEX Part D climate disclosure?Part D asks for the current and anticipated financial effects of climate-related risks. For Hong Kong-listed issuers with mainland carbon-market operations, the allowance gap estimate is one of those effects, so the figure, basis and terminology used in the Hong Kong ESG report should match the mainland sustainability report and the finance team's year-end judgement.
Conclusion
The MOF's draft industry guides will mostly be discussed as more indicators. For power, steel, cement and aluminium issuers, the more consequential change is a single sentence in the power guide that says an enterprise may disclose an estimated allowance gap and its basis when the final allowance is not yet set, and the absence of that sentence from the other three. Treat the estimate as finance treats any period-end judgement: make it once in the close, record the basis, carry it unchanged into the mainland sustainability report and the Hong Kong Part D disclosure, and true it up openly when verification lands. Issuers that want the basis question settled before next spring have until 26 October to say so.
Edited / written by: Amanda Cheung, Founder, AMMO Group
