A research report from Guolian Minsheng Securities indicates that, against the backdrop of the draft "Ecological Environment Code" encompassing legal constraints for carbon peaking and carbon neutrality goals, the statutory definition of carbon market responsibilities, and the strengthening of the circular economy system, the securities firm believes supply-side constraints in the chemical industry will exhibit medium-to-long term persistence. The guidance of implementing a dual-control system for both total carbon emissions and emission intensity is expected to drive the upgrade, transformation, or phase-out of high-carbon, low-value-added production capacity in the chemical industry. Leaders in low-carbon emission segments are poised to benefit significantly.
The firm recommends focusing on: (1) leading companies related to the entire oil-based chemical industry chain; (2) leading companies related to the entire coal-based chemical industry chain; and (3) low-emission leaders in specific sub-sectors of the basic chemicals industry. The key viewpoints of Guolian Minsheng Securities are as follows:
Carbon peaking and carbon neutrality policies have received fundamental support. On March 12, 2026, the Fourth Session of the 14th National People's Congress passed the Ecological Environment Code of the People's Republic of China. As the second comprehensive law named a "code" following the Civil Code, the firm's analysis of its draft suggests it may establish a complete closed-loop system from "targets - institutions - supervision - penalties - compensation." This could upgrade carbon emission constraints from administrative guidance to statutory responsibilities, transforming carbon costs from an "expected variable" into a "legal cost." If formally enacted into law, this will profoundly alter the supply logic and capital expenditure behavior of cyclical industries, particularly the chemical industry, significantly increasing the strength and enforcement certainty of supply-side constraints.
The carbon market and quota settlement responsibilities are expected to be statutory, rigidly strengthening emission reduction obligations. The draft Ecological Environment Code explicitly assigns responsibilities to relevant departments, including the State Council's ecological and environmental authorities, for managing product carbon footprints and supervising carbon market transactions. Simultaneously, it specifies that key greenhouse gas emitters included in the national carbon emission trading market must fulfill mandatory emission reduction responsibilities according to state regulations. Emitters failing to fully settle their carbon emission quotas will bear legal liability. In the future, carbon cost will no longer be an "expected variable" but a "legal cost." The gradual replacement of high-emission, low-value-added enterprises by low-emission, high-value-added enterprises will become a highlight of the green transition.
The principles of a circular economy and resource reduction mean supply-side constraints are further extending to the source. The draft Ecological Environment Code clearly sets the goal of developing a circular economy, adhering to reduction, reuse, and recycling. This indicates that future industry competition will shift from "scale expansion" to "competition based on per-unit resource efficiency and carbon efficiency."
Carbon peaking and carbon neutrality are entering the 15th Five-Year Plan period with unprecedented attention from provincial party secretaries. Tracking 18,916 public engagements of 57 provincial party secretaries from 2020 to 2025, the firm found that starting from September 2025, the attention of provincial party secretaries to carbon peaking and carbon neutrality significantly increased, up 137% year-on-year and over 58% compared to the peak during the 2021 energy consumption dual-control period. September 2025 coincided with the timing of the national leader's pledge for nationally determined contributions (NDCs) to carbon reduction at the UN Climate Change Conference. The firm believes the impetus for carbon peaking and carbon neutrality during the 15th Five-Year Plan period will significantly exceed previous periods. The "dual carbon control" and the "three-dimensional management system for carbon" during the 15th Five-Year Plan period may impose strong constraints on the supply side of cyclical industries, potentially prompting local governments to optimize provincial industrial structures according to local conditions and drive the upgrade, transformation, or phase-out of some "high-emission, low-value-added" capacity within cyclical industries, especially the chemical industry.
Production capacity in sub-sectors with high carbon emission intensity may be constrained first. From the perspective of dual carbon emission control, local governments, aiming to meet assessment targets for reducing carbon emission intensity, are likely to impose strict restrictions on project approvals for high-intensity industries. Sectors such as ammonia fertilizers, coal chemicals, and chlor-alkali will face limitations on new capacity. Their growth model of expanding scale through capital expenditure has essentially ended. As the national carbon market coverage expands and quotas tighten, high carbon emission intensity will directly translate into significant carbon quota costs, continuously squeezing the survival space of high-cost, low-efficiency capacity within the industry.
Chemical industry capital expenditure has already shown a trend of contraction. Since 2024, year-on-year capital expenditure in the oil petrochemicals and basic chemicals sectors has turned negative, continuing its downward trend through the first three quarters of 2025, indicating a clear decline in willingness for supply expansion. Against the backdrop of the continuous strengthening of the "three-dimensional management system" and the accelerated advancement of carbon assessment during the 15th Five-Year Plan period, the firm judges that approvals for new high-carbon capacity will become more cautious, leading to a systemic decline in supply elasticity. If marginal improvements in demand coincide with a looser liquidity environment, the industry's profit center is expected to rise.
Risk warnings include the potential impact of data inaccuracies or source errors on results; risks associated with differences between the final code text and the draft; risks of policy implementation falling short of expectations; risks of demand-side recovery being weaker than expected; risks related to unsuccessful carbon cost pass-through; risks of technological upgrades and transformation progress lagging expectations; and risks of significant fluctuations in raw material and energy prices.