As global climate action accelerates and carbon pricing mechanisms proliferate worldwide, Hong Kong businesses are navigating an evolving landscape of environmental regulation and climate policy. While Hong Kong has not yet implemented a formal carbon tax, the territory’s ambitious carbon neutrality targets, emerging carbon trading infrastructure, and exposure to international carbon pricing systems like the EU’s Carbon Border Adjustment Mechanism (CBAM) are reshaping business preparedness requirements.

This article provides an expert-level analysis of Hong Kong’s carbon pricing landscape, examining current policies, proposed mechanisms, international implications, and strategic considerations for business preparedness.

Hong Kong’s Climate Policy Framework

Carbon Neutrality Commitment and Climate Action Plan 2050

In October 2021, the Hong Kong Government announced the Climate Action Plan 2050, establishing a comprehensive roadmap to achieve carbon neutrality before 2050. This commitment aligns with China’s national goal to achieve carbon neutrality before 2060 and reflects Hong Kong’s integration into broader regional climate objectives.

The plan sets an ambitious interim target: reducing Hong Kong’s carbon emissions by 50% before 2035 compared to 2005 levels. This represents a significant acceleration from previous targets and demonstrates the Government’s increasing commitment to climate action.

Four Major Decarbonisation Strategies

The Climate Action Plan 2050 focuses on Hong Kong’s highest-emission sectors. In 2019, electricity generation accounted for 66% of carbon emissions, followed by transport (18%) and waste (7%). The four core strategies are:

Governance and Investment Commitment

To oversee climate action implementation, the Government established:

• An inter-departmental Steering Committee on Climate Change and Carbon Neutrality under the Chief Executive’s chairmanship to formulate overall strategy and coordinate actions
• The Office of Climate Change and Carbon Neutrality to strengthen coordination and promote deep decarbonisation
• A financial commitment of approximately HK$240 billion over 15-20 years for climate change mitigation and adaptation measures

Current Carbon Pricing Mechanisms in Hong Kong

Existing Carbon-Related Levies

While Hong Kong has not implemented a comprehensive carbon tax, certain carbon-related fiscal measures already exist:

• Hydrocarbon Oil Duties: Hong Kong currently imposes duties on hydrocarbon oil, which functions as a form of carbon taxation on fuel consumption
• Progressive Electricity Tariffs: Tiered pricing structures incentivize energy conservation
• First Registration Tax (FRT) Reductions: Since April 2008, buyers of environment-friendly commercial vehicles with lower emissions receive FRT reductions
• Profits Tax Deductions: From June 2010, businesses can deduct capital expenditure for eligible environment-friendly vehicles under profits tax

Hong Kong’s Carbon Trading Infrastructure

Rather than implementing a mandatory emissions trading system (ETS) or carbon tax, Hong Kong is developing voluntary carbon market infrastructure with ambitions to become a regional carbon trading hub.

HKEX Core Climate Platform

Launched in October 2022, the HKEX Core Climate platform represents Hong Kong’s flagship carbon market initiative. Key features include:

• Unique settlement currencies: The only marketplace in the Asia-Pacific region offering both HKD and RMB settlement for international carbon credit transactions
• High-quality carbon credits: Facilitates trading, settlement, custody, and retirement of verified carbon credits, including Gold Standard Verified Emission Reductions (GS-VERs)
• Voluntary participation: Targets businesses seeking to voluntarily offset emissions rather than mandatory compliance
• Strategic positioning: Designed to serve as a super-connector between Mainland China and global carbon markets

Voluntary vs. Mandatory Markets

Hong Kong’s approach focuses on voluntary carbon markets where participants trade carbon credits voluntarily—typically businesses wanting to offset their emissions. This contrasts with compliance carbon markets where participation is mandatory due to government regulation.

Since compliance markets only account for 11% of global emissions, the development of voluntary carbon markets is considered essential to achieve net zero targets. Hong Kong’s strategic focus reflects this global market reality.

Ambitious Growth Targets

In March 2025, Hong Kong deputies to the National People’s Congress jointly proposed promoting Hong Kong as a carbon trading center. Current initiatives include:

• A symbolic pilot deal of HK$10 million, covering 274,000 metric tons of CO₂
• Projects under discussion with banks and investors indicating transaction volumes exceeding HK$15 billion over the next three years
• Ambitions to build connections to what could become the world’s largest emissions trading system

The Carbon Tax Debate in Hong Kong

Arguments for Implementing a Carbon Tax

Despite Hong Kong’s ambitious climate targets and comprehensive Climate Action Plan 2050, critics argue that a key policy instrument is missing: a carbon tax. Proponents of carbon taxation in Hong Kong argue:

• Price signal effectiveness: A carbon tax would create direct price signals that incentivize emission reductions across all sectors
• Revenue generation: Carbon tax revenues could fund climate adaptation measures, renewable energy infrastructure, and just transition programs
• Sectoral targeting: A carbon tax could target high-emission sectors such as electricity, transport, and waste management
• Regional precedents: Singapore implemented a phased carbon tax approach, allowing businesses time to adapt—a model potentially suitable for Hong Kong
• Policy gap: Without carbon pricing, Hong Kong’s decarbonisation relies heavily on regulation and voluntary action, which may prove insufficient to meet 2035 and 2050 targets

Current Status: No Formal Carbon Tax Legislation

As of December 2025, Hong Kong has not enacted formal carbon tax legislation. The Government’s strategy emphasizes:

• Sectoral regulations and energy efficiency standards
• Development of voluntary carbon market infrastructure
• Green finance incentives and subsidies
• Public-private partnerships for decarbonisation projects
• Regional cooperation with Mainland China’s carbon markets

While some commentators argue that carbon taxation is “no longer an option for Hong Kong but a necessity,” the Government has not publicly committed to carbon tax implementation timelines.

EU Carbon Border Adjustment Mechanism (CBAM): Critical Implications for Hong Kong Exporters

Understanding the EU CBAM

The Carbon Border Adjustment Mechanism (CBAM) is the European Union’s tool to put a fair price on carbon emitted during the production of carbon-intensive goods entering the EU. The mechanism aims to:

• Prevent carbon leakage to countries without carbon pricing
• Create a level playing field between EU producers and importers
• Encourage cleaner industrial production globally

CBAM Timeline and Implementation

Sectors Covered by CBAM

CBAM initially applies to imports of goods and selected precursors in carbon-intensive sectors at highest risk of carbon leakage:

• Cement
• Iron and steel
• Aluminium
• Fertilisers
• Electricity
• Hydrogen

Impact on Hong Kong Exporters

With a significant portion of Hong Kong’s exports destined for the EU, CBAM creates critical implications for Hong Kong businesses:

Indirect Compliance Pressure

While Hong Kong companies are not directly obligated to comply with CBAM, their customers operating businesses in Europe face compliance requirements. This creates cascading effects:

• Supply chain transparency demands: European customers will require Hong Kong exporters to disclose carbon footprints and GHG emissions data
• Scope 3 emissions reporting: EU companies must report Scope 3 emissions (including supply chain emissions), driving demand for supplier emissions data
• Competitive pressure: Hong Kong exporters with lower carbon footprints gain competitive advantages over high-carbon competitors
• Potential cost impacts: Inability to provide emissions data or demonstrate carbon efficiency may result in higher CBAM levies on EU importers, potentially affecting purchase decisions

Carbon Price Credit Mechanism

CBAM includes a mechanism to avoid double carbon pricing: if non-EU manufacturers can evidence they have already paid a carbon price in their jurisdiction of origin, that cost can be deducted from the CBAM levy charged on entry into the EU.

This provision creates a potential advantage for exporters from jurisdictions with carbon pricing mechanisms. Hong Kong’s current lack of formal carbon pricing means Hong Kong exporters cannot claim such deductions, potentially disadvantaging them relative to competitors from carbon-pricing jurisdictions.

Strategic Recommendations for CBAM Compliance

Hong Kong exporters to EU markets should consider the following preparedness measures:

• Emissions measurement and reporting: Implement systems to measure and report product carbon footprints accurately
• Supply chain engagement: Work with upstream suppliers to obtain emissions data for Scope 3 calculations
• Decarbonisation investments: Invest in energy efficiency, renewable energy, and low-carbon production processes to reduce embedded emissions
• EU partner collaboration: Engage with EU customers to understand specific data requirements and align reporting methodologies
• Technology and data systems: Invest in carbon accounting software and data management systems to streamline compliance
• Professional guidance: Seek expert advice on CBAM compliance, carbon footprint calculation methodologies, and strategic positioning

Enhanced Climate Disclosure Requirements

HKEX Mandatory ESG Disclosures (Effective 1 January 2025)

From 1 January 2025, all main-board issuers on the Hong Kong Stock Exchange (HKEX) must disclose:

• Scope 1 and Scope 2 GHG emissions (previously subject to “comply or explain” regime—now mandatory)
• Climate-related financial risks and opportunities aligned with International Sustainability Standards Board (ISSB) climate disclosure standards

Understanding Emissions Scopes

While Scope 3 emissions are not yet mandatory under HKEX rules, the EU CBAM and other international frameworks increasingly require Scope 3 reporting, creating practical compliance needs for Hong Kong exporters and listed companies.

Green Finance Incentives and Support Mechanisms

Green and Sustainable Finance Grant Scheme (GSF Grant Scheme)

Launched in May 2021 and extended through 2027, the Green and Sustainable Finance Grant Scheme provides subsidies for eligible green and sustainable bond and loan issuances in Hong Kong.

Key Features (2024-2027 Extension)

• Subsidized costs: Covers bond issuance expenses and external review services
• Expanded scope: Now includes transition bonds and loans, encouraging industries moving toward decarbonisation
• Legal and arrangement fees: Hong Kong’s Pilot Bond Grant Scheme also reimburses legal fees and arrangement fees
• Market development goal: Positions Hong Kong as a transition financing platform for the region

Government Sustainable Bond Programme (GSBP)

Previously known as the Government Green Bond Programme and renamed in May 2024, the GSBP promotes green and sustainable finance development in Hong Kong. Key elements include:

• Framework alignment: Green Bond Framework (updated February 2022) aligns with Hong Kong’s climate commitments and international green bond standards
• Eligible projects: Proceeds fund green and sustainable projects consistent with improving the environment, combating climate change, and transitioning to a low-carbon economy
• Capital Works Reserve Fund: Proceeds credited to the CWRF to provide funding for qualifying projects
• Market signal: Government issuances demonstrate commitment and build market depth

Tax Concessions and Environmental Incentives

Business Preparedness: Strategic Considerations

Assessing Carbon Risk Exposure

Hong Kong businesses should conduct comprehensive assessments of carbon-related risks and opportunities:

Physical Risks

• Climate change impacts on operations, supply chains, and assets
• Extreme weather events and sea-level rise (particularly relevant for Hong Kong’s coastal location)
• Temperature changes affecting energy demand and operational efficiency

Transition Risks

• Policy and regulatory risks: Potential future carbon pricing, energy efficiency standards, emissions caps
• Market risks: Changing customer preferences, competitive positioning based on carbon performance
• Technology risks: Transition to low-carbon technologies, stranded asset risks
• Reputational risks: Stakeholder expectations on climate action and transparency

International Exposure

• EU CBAM compliance requirements for exporters
• Supply chain demands from international customers
• Access to green finance and lower cost of capital for climate leaders

Developing a Carbon Management Strategy

Proactive businesses should implement comprehensive carbon management programs:

• Baseline measurement: Establish accurate Scope 1, 2, and 3 emissions baselines
• Target setting: Set science-based decarbonisation targets aligned with 1.5°C pathways
• Reduction initiatives: Implement energy efficiency, renewable energy, process optimization, and circular economy measures
• Offset strategy: For residual emissions, develop credible offset strategies using high-quality carbon credits (potentially through HKEX Core Climate)
• Reporting and disclosure: Implement robust systems for climate disclosure aligned with ISSB, TCFD, and other frameworks
• Governance integration: Embed climate considerations into corporate governance, risk management, and strategic planning

Leveraging Green Finance Opportunities

Hong Kong’s expanding green finance ecosystem offers opportunities for businesses:

• Green bond issuance: Access GSF Grant Scheme subsidies for qualifying issuances
• Sustainable loans: Utilize sustainability-linked loans with interest rate incentives tied to ESG performance
• Transition finance: Access transition bonds and loans for decarbonisation investments in hard-to-abate sectors
• ESG performance communication: Strong climate performance can improve access to capital and reduce financing costs

Supply Chain Engagement

Given Scope 3 emissions typically represent the largest portion of corporate carbon footprints and the CBAM’s supply chain implications:

• Supplier assessment: Evaluate suppliers’ carbon performance and disclosure capabilities
• Engagement programs: Work with key suppliers on decarbonisation initiatives
• Data systems: Implement supply chain emissions tracking and reporting systems
• Procurement criteria: Integrate carbon performance into supplier selection and procurement decisions

Monitoring Policy Developments

Hong Kong’s carbon pricing landscape continues to evolve. Businesses should:

• Monitor Government consultations and policy announcements regarding potential carbon pricing mechanisms
• Engage with industry associations and Government stakeholders on climate policy development
• Track developments in Mainland China’s carbon markets and potential Hong Kong integration pathways
• Follow international carbon pricing trends, particularly EU CBAM expansions and other jurisdictions’ mechanisms
• Participate in voluntary initiatives and carbon market pilot programs to build capabilities

Regional Context: Mainland China’s Carbon Markets

China’s National ETS

Launched in 2021, China operates the world’s largest emissions trading system by covered emissions. Key aspects relevant to Hong Kong businesses include:

• Market size: Covers power generation sector initially, with plans to expand to other high-emission industries
• Hong Kong connectivity: Hong Kong has been deemed “welcome” to join China’s national carbon market, though integration mechanisms remain under development
• Strategic opportunity: Hong Kong’s position as a super-connector between Mainland and international markets creates unique opportunities
• RMB settlement: HKEX Core Climate’s RMB settlement capability positions Hong Kong to facilitate Mainland carbon market participation

Cross-Border Considerations

Hong Kong businesses with Mainland operations or supply chains should consider:

• Compliance requirements for Mainland facilities under China’s ETS
• Opportunities to leverage Hong Kong’s carbon market infrastructure for group-wide carbon management
• Potential future integration between Hong Kong and Mainland carbon pricing systems
• Alignment of carbon management strategies across Hong Kong and Mainland operations

Sector-Specific Considerations

Electricity and Energy-Intensive Industries

With electricity generation accounting for 66% of Hong Kong’s emissions, the energy sector faces particular scrutiny:

• Coal phase-out: Cessation of coal use for daily electricity generation represents a fundamental transition
• Renewable energy targets: 7.5-10% renewable share by 2035, rising to 15% subsequently
• Energy efficiency mandates: Commercial buildings targeted for 30-40% consumption reduction by 2050 (vs. 2015)
• Carbon pricing exposure: Energy-intensive sectors most likely to face future carbon pricing if implemented

Transport and Logistics

As the second-largest emissions source (18%), transport sector businesses should prepare for:

• Vehicle electrification: Cessation of new fuel-propelled and hybrid private car registrations in 2035 or earlier
• Fleet transition: Promotion of electric and new energy public transport and commercial vehicles
• Infrastructure investment: Charging infrastructure development requirements
• Tax incentives: Continued FRT reductions and profits tax deductions for environment-friendly vehicles

Manufacturing and Export-Oriented Sectors

Manufacturers, particularly those exporting to EU markets, face critical CBAM-related considerations:

• Product carbon footprinting: Measurement and reporting of embedded emissions in exported goods
• Process optimization: Investment in low-carbon manufacturing technologies and processes
• Renewable energy procurement: Transition to renewable electricity to reduce Scope 2 emissions
• Competitive positioning: Carbon efficiency as a source of competitive advantage in international markets

Real Estate and Property Development

Buildings represent a critical decarbonisation focus area:

• Energy efficiency standards: Compliance with increasingly stringent building energy codes
• Green building certification: BEAM Plus and other certifications increasingly expected
• Retrofitting opportunities: Substantial market for building retrofits to meet 2050 efficiency targets
• Green finance access: Green building projects eligible for favorable financing terms and incentives

Financial Services

Hong Kong’s position as an international financial center creates unique opportunities and responsibilities:

• Green bond market development: Growing issuance and investment opportunities
• Carbon trading services: Financial institutions’ role in developing HKEX Core Climate and regional carbon markets
• Climate risk integration: Incorporation of climate risk into lending, investment, and insurance decisions
• ESG product innovation: Development of climate-focused financial products and services

Conclusion

While Hong Kong has not yet implemented a formal carbon tax, the territory’s carbon pricing landscape is rapidly evolving through climate policy commitments, carbon market infrastructure development, and exposure to international mechanisms like the EU CBAM. The Climate Action Plan 2050’s ambitious targets—50% emissions reduction by 2035 and carbon neutrality before 2050—will fundamentally reshape Hong Kong’s economic and regulatory environment.

For businesses, the message is clear: proactive carbon management is no longer optional but essential for compliance, competitiveness, and accessing capital in an increasingly carbon-constrained world. Whether through voluntary carbon markets, international carbon pricing exposure, enhanced disclosure requirements, or potential future domestic carbon pricing mechanisms, carbon accountability is becoming integral to business operations in Hong Kong.

Companies that invest now in emissions measurement, reduction initiatives, supply chain engagement, and climate risk management will be best positioned to navigate this transition, capture green finance opportunities, and maintain competitive advantage as Hong Kong progresses toward its carbon neutrality goals.

This article is current as of December 2025. Carbon pricing policies and climate regulations continue to evolve. Businesses should monitor official Government announcements, HKEX guidance, and international developments for the latest requirements.

Sources and References

• Climate Targets of Hong Kong – Carbon Neutrality and Sustainable Development
• Government announces Hong Kong’s Climate Action Plan 2050
• GovHK: Climate Change
• Climate Compliance and Carbon Opportunity: Asia’s Q2 Legal Outlook – Watson Farley & Williams
• The carbon border adjustment mechanism (CBAM): where are we now? – Norton Rose Fulbright
• Carbon Border Adjustment Mechanism – European Commission
• Hong Kong Monetary Authority – Tax Concessions and Incentive Schemes
• Green and Sustainable Finance Grant Scheme – Financial Services and the Treasury Bureau
• Hong Kong Government Sustainable Bond Programme – Framework
• Carbon tax no longer an option for Hong Kong but a necessity – South China Morning Post