BEIJING, Aug 26 (Reuters) - China will tighten its carbon trading market by introducing absolute emissions caps in some industries for the first time starting by 2027, the cabinet said on Monday evening.

The caps will be implemented first in industries with relatively stable carbon emissions by 2027, according to a statement by the State Council and Central Committee of the Communist Party. By 2030, China's nationwide carbon market or emissions trading scheme (ETS) will be basically established.

"Policymakers are now actively tightening the system," said Xuewan Chen, senior research analyst at LSEG.

The national carbon market, which would replace the current system of eight pilot markets launched in 2021, would have absolute emissions caps and a combination of free and paid carbon emissions allowances (CEAs), the statement said.

Currently, CEAs are based on carbon intensity benchmarks that are reduced over time, rather than absolute emissions caps.

Firms are granted a quota of free CEAs and if actual emissions exceed a company's quota during a given compliance period, it must buy more allowances from the market to cover the gap. If its emissions are lower, it can sell its surplus CEAs.

"The (cabinet) document provides much-needed transparency for the development timeline for China's carbon markets," said Mai Duong, Asia-Pacific carbon markets analyst with Veyt, adding it showed China considered carbon markets "the key tool" in meeting its decarbonisation goals.

The ETS will expand by 2027 to basically cover major carbon emitting industries, the statement said, without detailing the specific industries.

Analysts have said chemicals, petrochemicals, papermaking and domestic aviation would be among those included in China's scheme.

The regulation also broadens market participation to banks and financial institutions, which will help increase liquidity, Duong said.

In September last year China said it would broaden the carbon market beyond the power sector to include steel, cement and aluminium - which would cover about 60% of the country's greenhouse gas emissions. But analysts said the large amount of free allowances means that the market has so far had little effect on China's carbon emissions.

"It is positive that China now has a clear timeline for the full scope expansion – but whether this will deliver significant effectiveness in reducing the country’s giant emissions remains to be seen," Duong said.