Circular economy (CE) as a new model of economic development promotes the maximum reuse/recycling of materials, goods and components in order to decrease waste generation to the largest possible extent. It aims to innovate the entire chain of production, consumption, distribution and recovery of materials and energy according to a cradle to cradle vision.

In April 2010 the Tokyo Metropolitan Government launched the Tokyo Cap-and-Trade Program to reduce energy consumption-related CO2 emissions at the city level. This is the world's first cap-and-trade programme to cover buildings in the commercial, industrial and public sectors. Its main aim is to reduce CO2 emissions from energy consumption in existing buildings in urban areas; therefore, it is called an ‘urban cap-and-trade programme’.

The Shenzhen ETS is the first urban-level “cap-and-trade” carbon emissions trading scheme to operate in China. This paper gives an overview of the economic and emissions situation in Shenzhen and focuses on the development of the Shenzhen ETS regulatory framework. It is devised as an ETS with an intensity-based cap, output-based allocation and a market for trading of allowances. The design of the Shenzhen ETS attaches great importance to coordinate the dynamic relationships between economic growth, industrial transition and emissions control.