China launches three-year decarbonization campaign, sets 2028 deadline for inefficient ethylene assets

China has launched a new three-year energy-efficiency and decarbonization campaign, placing additional pressure on ethylene capacities under 800,000 tons/year. The plan requires facilities that fail to meet mandatory efficiency standards to complete upgrades by the end of 2028 or face closure, while offering financial support for modernization projects. The big question now: How will this reflect on China’s ethylene capacities and global markets amid growing oversupply?

What does this campaign cover?

China unveiled a new three-year energy-efficiency and decarbonization campaign covering key heavy industries, including refining, ethylene, methanol and synthetic ammonia production, on June 15, 2026. The initiative, jointly issued by five government agencies led by the National Development and Reform Commission (NDRC), aims to accelerate industrial upgrades while eliminating production capacity that fails to meet mandatory energy-efficiency standards.

Under the plan, China aims to increase the share of production capacity operating at benchmark energy-efficiency levels by an average of 20% points across key industrial sectors by the end of 2028. For coal-fired power generation, the target increase is 15% points. Authorities estimate the campaign will generate energy savings of more than 100 million tonnes of standard coal and reduce carbon emissions by over 200 million tonnes.

The campaign covers steel, electrolytic aluminium, cement, flat glass, oil refining, ethylene, synthetic ammonia and methanol. According to the policy document, refining, ethylene, ammonia and methanol will remain priority sectors for energy-saving and carbon-reduction upgrades.

Policy evolves from aging-capacity reviews to efficiency-driven compliance

The latest campaign builds on China’s broader efforts to restructure its industrial base. In 2025, authorities launched a review of aging industrial assets from monomers to polymers, lowering the threshold for what constitutes an "aging" chemical facility from 30 years to 20 years and signaling a tougher stance toward outdated production capacity.

While that initiative focused primarily on identifying and reviewing older assets, the newly released action plan shifts the emphasis toward energy performance. Rather than targeting facilities based on age alone, the new policy establishes mandatory energy-consumption and efficiency benchmarks that producers must meet regardless of when a plant was built.

The approach suggests Beijing is increasingly focused on improving energy efficiency, reducing carbon intensity and strengthening industrial competitiveness, while leaving the fate of individual assets to their ability to comply with increasingly stringent operating standards.

Ethylene capacities under 800K tpa remain a key target, polymers not included

The petrochemical sector features prominently in the new campaign. Authorities are calling for modernization of major refining processes as well as key petrochemical value chains, including olefins and monoethylene glycol (MEG) production. Unlike the 2025 reform, the new policy has no direct references to polymer products such as polyethylene (PE), polypropylene (PP) or PVC.

The policy specifically requires naphtha-based ethylene crackers with capacities below 800,000 tons/year to accelerate upgrading and modernization efforts. Although no immediate closures are mandated based on size alone, the measure places additional pressure on smaller crackers, many of which are older and generally less energy efficient than China’s newer world-scale facilities.

Industry experts have long identified sub-800kt/year crackers as among the most vulnerable assets within China’s petrochemical sector, particularly as newer integrated complexes continue to enjoy significant scale and cost advantages.

Upgrade by 2028 or face closure

The most significant element of the campaign is the introduction of a clear compliance deadline.

Projects that fail to meet mandatory energy-consumption limits and benchmark efficiency standards must complete upgrades by the end of 2028 and strive to reach benchmark efficiency levels. Facilities that fail to complete upgrades on time, or remain non-compliant after renovation, will be phased out and shut down in accordance with regulations.

To support the transition, authorities will provide financial incentives, including subsidies covering up to 20% of approved investment costs. Priority will be given to projects that achieve benchmark efficiency levels after upgrades. The government also plans to strengthen electricity-pricing mechanisms that impose higher costs on inefficient operations.

What it could mean for China’s ethylene sector

The policy introduces a more defined pathway than last year’s aging-capacity review. Instead of immediately forcing older facilities out of the market, Beijing is offering producers an opportunity to modernize while simultaneously setting a firm deadline for compliance.

As a result, age alone may no longer determine which assets survive. Smaller and older crackers that successfully upgrade could remain operational beyond 2028, while facilities that fail to improve their energy performance face a clear risk of closure. If a significant share of smaller crackers successfully upgrade and remain operational, this will potentially prolong global oversupply conditions and delay the market rebalancing anticipated by producers in other regions.

The extent to which producers choose to invest in upgrades over the next three years could ultimately determine whether the campaign results primarily in modernization or leads to a meaningful reduction in China’s older ethylene capacity.