【SMM analysis】The Abolition of "Echelon Utilization": A Milestone in China's Lithium-Ion Battery Recycling Policy

SMM August 7 News:

On July 30, 2026, the Ministry of Industry and Information Technology (MIIT) issued Announcement No. 20 of 2026, officially repealing all provisions related to "echelon utilization"  under the Industry Norm Conditions for Comprehensive Utilization of Spent Power Batteries from New Energy Vehicles (2024 Edition), and removing all 100 previously certified "echelon utilization" enterprises from the list of compliant entities. From its first appearance in national policy to its formal suspension in 2026, "echelon utilization" has traversed a long, multi-stage journey at the policy level. This is not merely a simple policy revision, but rather a profound transformation concerning safety baselines, resource efficiency, and regulatory philosophy.

The policy evolution can be divided into multiple phases: Phase I — the Encouragement and Development Period (2020–2021); Phase II — the Regulation and Management Period (2022–2023); Phase III — the Transition Period (2024–2025); and finally, the Comprehensive Abolition Period in 2026.

The logical starting point of the "echelon utilization" policy is straightforward: retired power batteries typically retain a substantial residual capacity (generally 70%–80% of initial capacity), and direct dismantling and disposal would result in the waste of critical resources such as lithium, cobalt, and nickel. Theoretically, after inspection, sorting, and reassembly, retired batteries could be downgraded for use in applications with relatively lower performance requirements—such as backup power for telecommunications base stations and grid-scale energy storage—thereby maximizing the utilization value of resources.

However, in its interpretive statement released on the same day as the announcement, the Department of Energy Conservation and Comprehensive Utilization of MIIT pointed out that spent power batteries generally suffer from poor cell-to-cell consistency and widely varying residual lifespans. Without stringent quality control procedures, battery products that are simply dismantled and reassembled are highly susceptible to thermal runaway triggered by overcharging, short circuits, or mechanical crushing, posing prominent safety hazards. More critically, some enterprises, under the guise of "echelon utilization," introduced insufficiently tested refurbished batteries into the market, and even unlawfully deployed them in applications such as electric bicycles and self-balancing scooters—products closely tied to personal safety—thereby directly endangering the lives and property of the public. Consequently, the Industry Norm Conditions for Comprehensive Utilization of Spent Power Batteries from New Energy Vehicles (2024 Edition), issued by MIIT in 2024, explicitly stipulated for the first time that "echelon-utilized batteries shall not be used in electric bicycles." Furthermore, the Interim Measures for the Administration of Recycling and Comprehensive Utilization of Spent Power Batteries from New Energy Vehicles (Order No. 73), jointly issued by six ministries in 2025, redefined "comprehensive utilization" at the institutional level to encompass dismantling, crushing, sorting, smelting, and other resource recovery activities, thereby excluding the concept of "echelon utilization" entirely. Concurrently, the Measures for the Administration of Echelon Utilization of Power Batteries of New Energy Vehicles (MIIT Joint Energy Conservation [2021] No. 114) and three other legacy regulations were repealed.

From the newly issued MIIT Announcement No. 20, three key conclusions can be drawn:

1. The recycling pathway remains unaffected. Dismantling, crushing, sorting, smelting, and other resource recovery activities are directions explicitly encouraged by policy, and technical indicators such as lithium recovery rates will only continue to rise.

2. What has been abolished is the policy concept and regulatory framework of "echelon utilization," not the prohibition of manufacturing qualified products from spent power batteries. Battery products manufactured by enterprises using spent power batteries may still be lawfully sold and used, provided they comply with the quality standards applicable to their intended fields of application.

3. Current industry investment is expanding at an excessively rapid pace, and capacity utilization rates of comprehensive utilization facilities in certain regions remain low. The updated norm conditions have established entry thresholds of no less than RMB 10 million in registered capital and no less than RMB 5 million in paid-in capital. The repeal of the echelon utilization provisions will further accelerate industry consolidation, and small and medium-sized enterprises lacking technical and financial capabilities will face pressure to either transform or exit the market.

From the initial proposal to "strengthen the cascade utilization and recycling management of power batteries," to the comprehensive abolition of all "echelon utilization"–related policy provisions under MIIT Announcement No. 20 on July 30, 2026, a policy concept that had persisted for years has now been brought to a close. "Echelon utilization" has completed a full cycle—from its original vision of resource conservation to the industry reality of safety hazards. The policy has followed a clear evolutionary trajectory: encouraging exploration, enacting dedicated legislation, instituting regulatory management, tightening safety requirements, decoupling the concept, and ultimately achieving comprehensive abolition. Abolition is not negation, but course correction. When practice demonstrates that a given pathway cannot strike a balance between safety and efficiency, the policy's decisive course correction is itself the most responsible course of action.

The farewell to "echelon utilization" marks a sign of maturity for China's lithium battery recycling industry. The competition in the next decade belongs to those enterprises that achieve genuine breakthroughs in recycling technology, accomplish closed-loop management across the full product lifecycle, and withstand the test of safety and compliance.