Low Carbon Shanghai

August 2014

Avoiding Carbon Lock-In through Sustainable Urbanization

Executive summary


Shanghai will lock in a future of high energy costs and worsening air pollution if it does not change current policies for the planning, construction, and operation of new urban developments, particularly transportation systems, and buildings. This report assesses the policy frameworks for these systems and their implications for Shanghai's prospects as a low carbon city. The major obstacles to efficient, low carbon development are the fragmented planning system for land use and transportation, the insufficiently stringent building energy efficiency codes and the lack of investment in opportunities to encourage efficient consumer behavior.

Carbon lock-in occurs when infrastructure projects, or other developments with long lifetimes, are designed with high-carbon characteristics that are difficult to reverse later. This issue is particularly acute for rapidly-urbanizing Shanghai, where there is an emphasis on keeping project costs low and completion times short.

This report was prepared as a case study for the Chinese Academy of Social Sciences (CASS), a prominent government-affiliated think tank in China. The recommendations are addressed to the Shanghai Municipal Government. Many recommendations hold relevance for the governments of other fast-growing Chinese cities facing similar carbon lock-in challenges to Shanghai.

Scope and structure of investigation

This report evaluates the current efforts of the Shanghai Municipal Government to manage the carbon footprint resulting from rapid urbanization. The urbanization process was divided into the planning, construction, and operations stages to identify the relevant policies for investigation. For each stage, the relevant policies were assessed in terms of their ability to achieve Shanghai’s policy goals in a low-carbon context.

Project scope: Planning, construction and operations

Stage of urban development

Areas of policy focus

Policy goal for Shanghai in low-carbon context


Land use planning and transportation

Transit-oriented development (TOD): cluster residential and commercial developments along mass transit corridors


Building energy efficiency

Minimize energy use from public and residential buildings


Electricity consumption by end users

Encourage efficient behaviors and  decisions by citizens and building operators


Key findings and recommendations

Recommendations were developed for each policy area: land use planning and transportation, building energy efficiency and electricity consumption by end users. The recommendations require adjustments to the policymaking process to enable flexible policy design, increased use of baseline data and incorporation of externalities into economic analysis. Focusing on these three principles should increase the Shanghai Municipal Government’s ability to implement a low carbon policy framework that can adapt to changing trends, is consistent with the city's other policy goals and facilitates ongoing monitoring and evaluation. This style of evidence-based and adaptive policy making is critical for responding to the challenges of a rapidly changing world.

Land use planning and transportation policy

The land use and transportation planning process in Shanghai impacts the carbon footprint of the urban expansion by determining the density of development and the use of public transportation versus private vehicles. The city has made in-principle commitments to transit-oriented development (TOD), which should reduce the carbon footprint by clustering high-density residential and commercial developments along mass transit corridors.

The implementation of the city's development Masterplan for 2001-2020 was assessed to determine whether the principles of TOD are being implemented effectively. This assessment found that the rapid pace of population growth and the rigidity of land use planning processes were both major barriers to implementing TOD.

Recommendations: Land use planning and transportation

Shanghai should reform land planning policies and processes to make implementation of TOD more feasible.

  • Reform planning policies and processes to make them more responsive to the market forces driving the city’s urban development.
  • Introduce pricing and incentive reforms to ensure that consumers pay the full social costs of their individual transportation and lifestyle choices, including private vehicles and public transportation.
  • Encourage more coordinated planning and investment by allowing development stakeholders to capture the additional benefits of new residential and commercial developments when they are coordinated with public transportation expansions. Through these reforms TOD can become a means of financing public transit infrastructure expansions at Shanghai's urban fringe, since it increases the profitability of both property developments and the transportation system.

Building energy efficiency

The greatest opportunity to reduce energy consumption from buildings is by investing in improvements to building envelope efficiency, before construction is completed. Mandatory standards are necessary because a variety of market barriers prevent these investments from occurring, even when they are economically viable over the lifetime of the building.

Shanghai has implemented energy standards for residential and public buildings. These standards were assessed in terms of their ability to drive the economically optimal uptake of building energy efficiency (BEE) opportunities in new buildings. The major finding was that conflicting goals and drivers for policy design have led to the implementation of codes that are not stringent enough to encourage optimal levels of BEE investment.

Recommendations: Building energy efficiency

Shanghai should increase the stringency of its BEE codes, to encourage BEE investment levels that are closer to "cost optimal".

  • Invest in increased data collection and broaden the scope of economic modeling to optimize the code to the economically efficient level of BEE over a building’s expected lifetime.
  • Incorporate externalities into the calculation of economic benefits from BEE, including the health impacts of air pollution. Explicit consideration of externalities would help incorporate BEE into the city's broader low-carbon plans.
  • Develop long-term projections to account for expected changes in energy-related behaviors, costs and prices over the coming decades, so that buildings constructed today are optimized for tomorrow's energy system.

Electricity consumption by end users

Shanghai's urban expansion is driving increasing residential and commercial electricity demand. Government policies can encourage efficient behavior by consumers using pricing, metering technologies and other demand-side management (DSM) programs.

This section analyses policy options for Shanghai to drive more energy efficient behavior by consumers. The major finding was that the current policies and programs are insufficient to achieve the levels of demand-side management investments and consumer behavior changes required for a low carbon city.

Recommendations: Electricity end use

Shanghai should pursue electricity market reforms to align the investment and behavioral incentives of all stakeholders with the city's low carbon goals.

  • Grow the ESCO industry through innovative financing models such as a "Green Bank" and by actively seeking foreign investment through favorable regulations and tax incentives. Provide incentives for ESCOs to invest in data collection and monitoring systems such as smart meters.
  • Introduce dynamic electricity pricing and consumer education programs such as displays on public buildings, enhanced billing, and goal setting on the end-user side. Programs can be introduced through community-based engagement. Program design and implementation should include other electricity industry stakeholders such as NGOs and utility companies
  • Fund trials of innovative feedback measures with the potential to provide large energy savings and supply cost reductions.


If Shanghai continues on its current urban development path, it is likely that the city's "new town" development will lock in high levels of private vehicle use, inefficient buildings, and energy wasteful behaviors. These investments will be expensive to reverse and will hold Shanghai back as it tries to reduce carbon emissions in the future. The recommendations proposed in the report are actions that can be taken in the short and medium term to prevent the lock-in phenomenon. The Shanghai government should establish a new policy framework that will improve its ability to consider the tradeoffs involved in low-carbon development and design policies that achieve the long-term goal of sustainable economic growth.

For more information on this publication: Please contact Environment and Natural Resources
For Academic Citation: Wing Ho Tom Cheng, Gautam Kamath, Kevin Rowe, Eleanor Wood, and Taisen Yue. “Low Carbon Shanghai: Avoiding Carbon Lock-In through Sustainable Urbanization.” Belfer Center for Science and International Affairs, Cambridge, Mass: Harvard University, August 2014.