Cross-border carbon trading in China has, until now, meant voluntary credits. On September 22, that changed. At the carbon trading forum of the 2026 Carbon Peaking and Carbon Neutrality Forum in Shenzhen, Towngas Energy signed a cooperation agreement with PetroChina International (Hong Kong) to run a cross-border settlement pilot for Shenzhen Emission Allowances (SZEA), the compliance units of the Shenzhen pilot ETS. According to Ideacarbon’s reporting, it is the first cross-border settlement pilot anywhere in China to use mandatory carbon market allowances as the underlying asset, and it extends the Shenzhen-Hong Kong carbon connection from the voluntary market into compliance territory. For buyers, exchanges and investors watching how China’s carbon markets open to the outside world, this is the first concrete transaction structure to price against.
What the Pilot Actually Does
The pilot is jointly promoted by the Shenzhen Green Exchange and Core Climate, the international carbon marketplace operated by Hong Kong Exchanges and Clearing (HKEX). Its purpose is to explore the business path for offshore entities to participate in the Shenzhen carbon market, covering the two hardest operational links: cross-border fund settlement and the transfer and delivery of allowances.
The distinction from previous cross-border deals matters. Hong Kong has hosted international voluntary credit trading for years, and Shenzhen-Hong Kong cooperation on voluntary credits is established practice. Allowances are different: SZEA units are compliance instruments surrendered by obligated installations in Shenzhen’s mandatory ETS, one of China’s pilot schemes that has been trading since 2013. Moving them across a border raises questions of registry access, capital account settlement and regulatory oversight that voluntary credits never touch.
Hong Kong Has Been Building Toward This for Years
The pilot did not appear out of nowhere. HKEX launched Core Climate in October 2022 as the only carbon marketplace offering settlement in both Hong Kong dollars and renminbi. According to a March 2026 written reply by Hong Kong’s Secretary for Financial Services and the Treasury, Christopher Hui, the platform’s cumulative transaction volume had exceeded 1 million tonnes of carbon credits, with more than 130 registered participants and over 60 listed projects spanning forestry, solar, wind and biomass across Asia, South America and Africa. Cathay Pacific settled 50,000 tonnes of voluntary credits through Core Climate in December 2024.
The institutional groundwork is also visible. In September 2025, HKEX signed a memorandum of understanding with the Guangzhou Emissions Exchange, Shenzhen Green Exchange and Macao International Carbon Emission Exchange to develop carbon markets across the Greater Bay Area. In the same March reply, Hui confirmed that HKEX is working with GBA exchanges to test cross-boundary carbon trade settlement, with the aim of completing the pilot and summarising the experience within 2026. The Towngas Energy deal is that plan surfacing in an actual signed transaction.
On the technology side, the Hong Kong Monetary Authority and HKEX completed a tokenised carbon credit transaction test under Project Ensemble in 2025, pointing to a future settlement infrastructure that could handle cross-boundary transfers with less friction.
Why the Participants Matter
Towngas Energy, the mainland energy arm of The Hong Kong and China Gas Company, brings distribution scale and market access: it reports around 400,000 commercial and industrial gas customers and 128 zero-carbon smart industrial parks, and its parent sits on Hong Kong’s International Carbon Market Council. It was also among the participants in Core Climate’s first batch of carbon credit transactions. PetroChina International (Hong Kong) gives the pilot a state-linked counterparty with cross-border trading experience.
That pairing is not accidental. A first-of-kind settlement channel between a mainland pilot ETS and an offshore venue needs participants that regulators on both sides already know. Expect the early flow to be modest and heavily supervised, with the template value outweighing the tonnage.
Implications for Buyers, Developers and Investors
For international buyers and intermediaries, the pilot sketches a potential route into Chinese compliance carbon, a segment that has so far been closed to offshore participation. If the Shenzhen channel works, the logical extension is the national ETS, the world’s largest carbon market by covered emissions, where foreign access remains the outstanding structural question.
For project developers, the near-term effect is indirect but real: every functioning cross-border mechanism increases the optionality of China-linked supply, whether compliance allowances or the voluntary credits that Core Climate already lists. Hong Kong’s dual-currency settlement in HKD and renminbi removes one of the classic frictions in China-related carbon deals.
For investors, the metric to track is not volume but replication: whether the Shenzhen-Hong Kong template is adopted by the other GBA exchanges named in the 2025 MOU, and whether Beijing’s forthcoming cross-border trading rules, now in drafting, accommodate this kind of structure.
What to Watch
Three markers from here. First, whether the pilot completes within the 2026 window the Hong Kong government has set, and what the official summary says about settlement mechanics and participant eligibility. Second, whether Guangzhou and Macao replicate the model, which would turn a bilateral pilot into a regional settlement network. Third, the content of China’s national cross-border carbon trading measures once published: the gap between a tolerated pilot and a codified channel is where the real market signal will sit.
