Circular on Issuance of the "Action Plan for Comprehensive Deepening Reform of the Shanghai Carbon Market (2026-2030)"

Circular on Issuance of the "Action Plan for Comprehensive Deepening Reform of the Shanghai Carbon Market (2026-2030)"

The "Action Plan for Comprehensive Deepening Reform of the Shanghai Carbon Market (2026-2030)" (hereinafter referred to as the "Action Plan") has recently been issued. It focuses on three key initiatives – "Implementing the Initiative to Improve Quality and Efficiency of the Carbon Emissions Trading Market", "Implementing the Initiative to Guide and Incentivize Voluntary Greenhouse Gas Emission Reduction", and "Implementing the Initiative to Enhance Innovation Capacity of the Carbon Market" – and puts forward 16 key reform tasks.

Ⅰ. Background of Policy Drafting

In recent years, the Party Central Committee and the State Council have attached great importance to the development of the carbon emissions trading market. The Third Plenary Session of the 20th CPC Central Committee clearly identified "improving the carbon emissions trading market system" as a key component of the green and low-carbon development mechanism. In July 2024, the Deep Reform Commission of the CPC Shanghai Municipal Committee heard a report on optimizing the carbon market management mechanism and advancing the pilot work of carbon emissions trading. It pointed out that efforts should be made to meet the needs of green and low-carbon transformation, further clarify the development orientation, strengthen top-level design, and better explore systems and paths for the country. To better leverage the carbon market's role in resource allocation, the Shanghai Municipal People's Government has formulated and released the "Action Plan for Comprehensive Deepening Reform of the Shanghai Carbon Market (2026-2030)".

Ⅱ. Key Tasks of the Action Plan

The key tasks of the Action Plan focus on the three aforementioned initiatives and include 16 key reform tasks, specifically:

1. Establishing and improving a sound total quota management system;
2. Gradually expanding the market coverage in phases;
3. Optimizing methodologies for greenhouse gas emission accounting and reporting;
4. Steadily and orderly increasing the proportion of paid quota allocation;
5. Standardizing the mechanism for paid competitive allocation and carry-over of quotas;
6. Establishing and improving the greenhouse gas emission reporting and carbon market information disclosure system;
7. Promoting independent emission reduction by enterprises;
8. Improving the sustainable operation and management mechanism for carbon offset benefits for individuals/public;
9. Continuously innovating the incentive mechanism for carbon offset benefits;
10. Promoting the implementation of carbon neutrality for large-scale events;
11. Establishing and improving the carbon market support and supervision system;
12. Enriching the system of carbon financial products and services;
13. Innovating the coordination mechanism between the carbon market and the green financial market;
14. Vigorously fostering technical service institutions;
15. Increasing the supply of professionals in the talent market;
16. Strengthening international and regional cooperation and exchanges.

Ⅲ. Innovative Measures of the Action Plan

1. Carbon Emissions Trading Market

There are four key innovative measures in this regard:

Total Quota Management: The quota allocation system shall be aligned with the dual control system (for total carbon emissions and intensity). On the one hand, it will pilot total quota control for industries with relatively stable total carbon emissions; on the other hand, it will reserve development space for strategic emerging industries and future industries.

Market Expansion: It will orderly lower the inclusion threshold for high-energy-consuming industries (such as petrochemical and chemical industries), data centers, and water transportation; expand the coverage of the construction sector to include universities and hospitals; and study the inclusion of non-CO₂ greenhouse gases (such as nitrous oxide and methane) into management.

Paid Allocation: It will guide the establishment of a low-carbon development awareness that "carbon emissions incur costs, while carbon reduction brings benefits", and set differentiated paid allocation ratios by industry. By 2027, the proportion of paid quota allocation shall be controlled within 8%; by 2030, the proportion of paid quotas in the total quotas shall be further increased.

Quota Carry-over: To ensure alignment with the national carbon market, for regulated entities that enter the national carbon market, their remaining quotas in the Shanghai Carbon Market shall be carried over in three years; for other regulated entities, quota carry-over shall not be implemented for the time being.

2. Voluntary Greenhouse Gas Emission Reduction

There are three key innovative measures in this regard:

Promoting Sustainable Operation of Carbon Offset Benefits: It will implement refined "classification and grading" management of methodologies, expand emission reduction behaviors and scenarios, emphasize the establishment of a normalized closed-loop absorption system, and empower carbon offset benefits management with blockchain and AI-driven digital intelligence.

Innovating Incentive Mechanism for Carbon Offset Benefits: It will promote the integrated innovation of the user growth system for carbon offset benefits, facilitate the development of a personal carbon credit evaluation system, stimulate business vitality, attract diverse entities to participate in co-construction, and advocate public welfare carbon cancellation.

Standardizing Carbon Neutrality for Large-scale Events: Governments, state-owned enterprises, and public institutions shall take the lead in demonstration; and carbon neutrality shall be gradually promoted for large-scale events such as performances, competitions, conferences, and exhibitions in a planned manner.

3. Carbon Finance Development

There are three key innovative measures in this regard:

Expanding Market Entities: On the premise of risk control and compliance with laws and regulations, the types of participants in the Shanghai Carbon Market (including financial institutions, overseas institutional investors that meet regulatory requirements, and individuals) shall be enriched in a timely manner.

Carbon Asset Collateral: It will support the inclusion of carbon assets traded in the Shanghai Carbon Market into the scope of eligible collaterals for financial institutions.

Green Finance: It will promote the establishment of an information mutual recognition mechanism between the carbon market and the green financial market, and study the establishment of a carbon account system based on enterprises' carbon performance.

4. Other Areas

There are four additional innovative measures:

Supporting and regulating the development of technical service institutions in the field of carbon emission management;

Implementing the socialized vocational skill level certification for carbon emission managers;

Actively striving for the settlement of an international carbon emission reduction trading platform under the Paris Agreement in Shanghai;

Strengthening dialogue and exchanges with international carbon markets.