A Strategic Pivot Toward Carbon Leadership
In 2025, the Shanghai Municipal Government released a landmark reform plan to reshape its carbon market between 2026 and 2030. The initiative is designed to align with China’s national “dual carbon” goals—peaking emissions before 2030 and achieving carbon neutrality by 2060—while positioning Shanghai as a global center for carbon trading, pricing, and finance.
The reform targets a fully integrated carbon ecosystem that complements the national market, adheres to international norms, and supports the city’s own decarbonization roadmap. The vision is not only to improve market efficiency and transparency but also to expand Shanghai’s influence in global climate governance.
Strengthening the Emissions Trading Scheme (ETS)
At the core of the reform is a restructuring of Shanghai’s emissions trading system. A more precise total allowance cap will be introduced, coupled with a flexible reserve allocation mechanism. This will ensure that allowance distribution aligns with both absolute emissions levels and emissions intensity across sectors, while also making room for low-carbon growth in strategic emerging industries.
The reform outlines a phased expansion of the market’s scope. From 2026, high-emitting sectors such as petrochemicals and data centers will be regulated if they emit over 10,000 tonnes of CO₂ equivalent per year. The maritime transport sector will face a lower threshold of 80,000 tonnes. By 2028, public institutions—including universities and hospitals—will be brought into the system, provided their emissions exceed 10,000 tonnes annually. The inclusion of non-CO₂ greenhouse gases such as methane and nitrous oxide is also under evaluation.
Advancing Emissions Accounting and Market Incentives
To support a credible carbon market, Shanghai will upgrade its emissions accounting methods. For key industrial sectors, emissions reporting will shift from the organization level to the facility level. In the building sector, reporting methodologies will be refined, and product carbon footprinting will be promoted. New accounting frameworks are also being developed for green fuels and carbon capture technologies.
A gradual shift toward paid allocation of allowances will introduce stronger market discipline. By 2027, no more than 8% of allowances will be paid for, but that proportion will increase through 2030. Sectors will be subject to differentiated allocation ratios and dynamic adjustment coefficients based on their performance in reducing emissions and building measurement systems.
Expanding Voluntary and Inclusive Carbon Mechanisms
The reform gives significant weight to voluntary climate action. Companies will be encouraged to adopt net-zero targets, build carbon footprint tracking systems, and use high-quality carbon credits. Shanghai also plans to expand its carbon inclusion mechanism, which incentivizes low-carbon behaviors at the individual level, such as public transport use, waste sorting, and energy-saving actions. These credits will be registered and verified using blockchain technology to ensure transparency and traceability.
Large-scale events—such as concerts, exhibitions, and sporting competitions—will be expected to implement carbon neutrality strategies. These initiatives will be piloted by state-owned enterprises and public institutions, with the goal of creating replicable models for future event planning.
Building Market Infrastructure and Regulatory Integrity
To manage these changes, Shanghai will launch a comprehensive digital platform for carbon emissions data and strengthen oversight mechanisms. Real-time emissions monitoring will be introduced where feasible, particularly in sectors with advanced metering infrastructure. New rules covering allowance registration, verification, trading, and information disclosure will underpin the city’s upgraded carbon governance framework.
The government will also establish clearer connections between energy-use data and emissions data, enhancing transparency and consistency across reporting systems.
Integrating Finance and Carbon Markets
Shanghai sees finance as a critical lever in driving its carbon market forward. Financial institutions will be encouraged to develop new carbon-related instruments, participate in spot and derivatives trading, and accept carbon assets as collateral. The city is also exploring models for individual investor participation and the use of cross-border RMB in carbon trading.
Carbon-related data and disclosures will increasingly feed into green finance frameworks. The government is promoting interoperability between the carbon market and credit rating systems, with the aim of linking carbon performance to access to finance.
Developing Talent and Technical Services
To support the expansion of the carbon market, the plan includes measures to develop a skilled workforce and a competitive service ecosystem. Carbon management professionals will be certified through formal vocational programs, while universities, enterprises, and technical service providers will collaborate on training and applied research.
Technical service institutions—including MRV (Monitoring, Reporting, and Verification) providers—will be supported through policy incentives and market development tools. Shanghai aims to grow a strong network of carbon service firms, industry associations, and international partners.
Driving International Collaboration
The plan emphasizes Shanghai’s role in global carbon market development. Through platforms like the UN Climate Change Conference and the China Carbon Market Conference, Shanghai will strengthen ties with international institutions and peer cities. Local firms and service providers will be encouraged to participate in global carbon projects, especially through the Belt and Road Initiative.
Efforts will also be made to attract international carbon trading platforms and promote mutual recognition of methodologies, standards, and data systems, paving the way for deeper integration into global carbon markets.
Summary: Key Reform Elements (2026–2030)
- Carbon Cap System: Scientific total cap with reserve allocations, adjusted by sector and emissions intensity.
- Market Expansion: Inclusion thresholds lowered for industrial, transport, and public sectors; potential future coverage of methane and N₂O.
- Upgraded Accounting: Shift from organization-level to facility-level reporting; product-level footprinting promoted.
- Paid Allocation: Quota auctioning to increase gradually, with differentiated ratios by sector and performance.
- Voluntary Carbon Market: Incentives for corporate and individual low-carbon actions; blockchain-based verification.
- Carbon-Neutral Events: Carbon neutrality frameworks mandated for large-scale public events.
- Infrastructure & Oversight: Real-time monitoring piloted; central data platform and unified reporting rules implemented.
- Carbon Finance: Support for new financial products, carbon-backed collateral, and integration with green finance policies.
- Workforce Development: Vocational certification, academic-industry partnerships, and professional training programs.
- International Integration: Alignment with international standards, deeper regional and global cooperation.
Conclusion: A Vision for Global Carbon Leadership
With the launch of this reform plan, Shanghai is setting the stage for a bold transformation of its carbon market. By aligning with national policies and international standards, the city is not only reinforcing its contribution to China’s carbon neutrality goals but also signaling its ambition to shape the global discourse on climate markets and green finance.
Shanghai’s approach is systemic and forward-looking: it integrates policy, market infrastructure, finance, innovation, and public participation into a unified carbon governance framework. The emphasis on accurate data, credible accounting, and financial tools makes it one of the most comprehensive municipal carbon market reforms to date.
As the reform unfolds between 2026 and 2030, Shanghai is poised to emerge not just as a national leader but as a global benchmark in carbon market development. Its success will depend on careful implementation, international cooperation, and the continued engagement of public and private stakeholders.
Shanghai’s 2026–2030 Carbon Market Reform is here.
New caps, stricter reporting, and phased paid allocations will reshape compliance for high-emitting sectors. BAARCH can help you prepare your ETS roadmap—covering baselines, MRV, and CAPEX–OPEX strategies.