The modular governance of blue carbon resources: an empirical analysis of China

In the context of global climate change, blue carbon ecosystems (BCEs) have gained prominence as strategic assets in global carbon markets, because of their amazing ability to sequester carbon and play a crucial role in ecological perspectives (Salimi et al., 2021). Seagrass beds, mangroves and salt marshes – the three main components of BCE – are increasingly recognized as having high carbon sequestration potential in the fight against climate change (Chan, 2021; Grimsditch, 2010; Wei et al., 2025). As part of its domestic climate change adaptation objectives as well as fulfilling its international obligations under the United Nations Framework Convention on Climate Change and related agreements, China is developing a regulatory regime for carbon sink resources, including blue carbon resources (Grimsditch, 2010; He and Cao, 2026; Wang et al., 2023; Xu et al., 2023). In the history of China’s carbon sink regulations, laws have been necessary for formalizing the recognition of new resources as distinct legal interests subject to rights, duties and market mechanisms. China’s regulation of carbon sinks, particularly ocean carbon sinks, has evolved through three phases: from indirect international obligations to direct domestic soft law, followed by binding national regulations (Wang et al., 2023). The enactment of binding legal norms with flexibility for adjustment based on implementation experience creates enforceable rules for carbon rights and trading.

While the primary regulatory framework recognizes blue carbon as a legal and economic interest, several challenges prevent its integration into carbon trading systems. Included in the following:

• The geographically uneven distribution of key BCEs along China’s coastline contributes to regional regulatory fragmentation. Local governments have responded quickly by introducing specific rules that are contextually appropriate but lead to inconsistent standards, methodologies and enforcement practices (Xu, 2023). Regulation fragmentation creates de facto barriers to interregional trading and undermines the development of a transparent, nationally integrated carbon market.

• Property rights are subject to legal ambiguity, which results in substantial transaction costs. Because of the unclear distinction between the right to carbon sinks and the physical substrates owned by the government, such as tidal flats, there is this ambiguity. Natural resources, which are regulated by law to be collectively-owned, added complexity to the process (Wan et al., 2022). When sea areas are re-designated for blue carbon projects, pre-existing rights of exploitation, such as aquaculture leases, may have to be terminated or modified.

• Underdeveloped market institutions cannot bridge the gap between the public benefit and the private benefit associated with blue carbon.

Generally, blue carbon cannot be used as bankable collateral because there are no clear rules governing benefit sharing, risk allocation and stakeholder participation. Furthermore, the lack of standardized measurement, reporting and verification protocols further restricts market liquidity and cross-regional transactions.

Accordingly, this study investigates how a modular governance framework can address structural deficiencies and enhance clarity, consistency and market functionality in China’s blue carbon governance, with a theoretical inspiration from the Coase Theorem (Coase, 1959), to facilitate an appropriate market-based approach for blue carbon resource allocation. To achieve this objective, this study first identifies the existing regulatory gaps in China. A modular governance framework is then proposed, followed by a multi-case analysis of Fujian, Guangdong and Hainan pilots which demonstrate its feasibility. This study attempts to fill the research gap by providing a systematic governance framework for China’s integration of the blue carbon market and by establishing a “China Paradigm” for the governance of global blue carbon resources.

From a narrow focus on carbon sinks and sequestration, academic engagement with BCE has evolved into a holistic view that emphasizes synergies with sustainable development objectives (Fujita et al., 2023; Howard et al., 2023; Pang et al., 2024; Wei et al., 2025). According to this expanded view, blue carbon is not simply a tool for reducing climate change but also a means of connecting ecological integrity and socio-economic development, a theme that has repeatedly been evoked in recent literature on blue carbon governance (He et al., 2025; Wan et al., 2021). As well as this, conceptual frameworks, such as the Drivers-Pressures-State-Impacts-Responses model, have been adapted to provide a structured basis for policy intervention by systematically mapping nonlinear interactions between climate change, anthropogenic pressures and biogeochemical feedbacks governing blue carbon dynamics(Duan et al., 2025). Credible quantification is the foundation of robust governance. Therefore, significant scholarly efforts have been devoted to developing standardized methodologies for measuring net carbon fluxes, including accounting for non-CO₂ greenhouse gases and lateral carbon transport (Wang et al., 2023, 2025). It is widely recognized that technological advances, specifically in remote sensing and artificial intelligence-based analytics, are essential for cost-effective, large-scale monitoring and verification to support both national inventories and market mechanisms (Li et al., 2025; Malerba et al., 2023). Mangroves, salt marshes and seagrass beds can be integrated into a coherent national inventory with the help of pioneering national accounting systems such as China’s Blue Carbon Accounting (Liu et al., 2024).

The operationalization of blue carbon projects, however, remains constrained by persistent challenges. Uncertainties in science, divergent measurement and reporting standards, unresolved questions regarding additionality, permanence, leakage and lack of generally accepted definitions and methodologies are all part of this issue (He and Zhang, 2023; Liu et al., 2024; Zhou, 2025). Although the Paris Agreement provides a framework for the inclusion of blue carbon in Nationally Determined Contributions, its provisions have not been specifically tailored to the biophysical and jurisdictional characteristics of coastal ecosystems (Purushotham and Thompson, 2026). Additionally, United Nations Convention on the Law of the Sea does not explicitly address blue carbon sinks and sequestration as marine resources, which creates a regulatory gap (Goldsworthy and Brennan, 2021; Oral, 2018). In response to this gap, national and polycentric policies have been developed (Ayostina et al., 2022; Lee et al., 2025; Powers et al., 2025; Xu, 2023; Xu et al., 2023).

Across contexts, a critical governance insight is that effective implementation depends on synergistic policy incentives, scientific capacity and adaptive management that balances ecological goals with sustainable development (He and Zhang, 2023). Blue carbon is not a natural fact, but a socially and scientifically constructed category shaped by power and knowledge (Thoni and Rummukainen, 2025). New theoretical perspectives are providing new perspectives for analyzing these complex governance arrangements. Applied to legal domains like data governance, modularity theory provides a structured approach for delineating and recombining bundles of rights, obligations and management functions. The potential application of this approach to hybrid ecological governance regimes – where state regulation, market mechanisms and community stewardship intersect – remains underexplored. Additionally, the application of a modular governance framework to such a socio-ecological governance system is still in its infancy. This study attempts to close this gap by empirically assessing the applicability of modularity theory to China’s blue carbon governance.

Technology and methods for resource management have evolved significantly over the past few decades, as have approaches to value production and cost accounting based on property rights (Fennell, 2019). To balance efficiency and equity in resource governance, the modularity theory offers a proposal that decomposing rights into combinable functional units based on complex systems theory. These units include public regulatory rights, private transaction rights and community participation rights (Baldwin and Henkel, 2015; Merrill, 2011; Smith, 2012). By shifting from a traditional property model based on exclusive ownership to a complementary rights perspective, different rights holders are able to unlock higher value by strategically combining their rights (Cooter and Ulen, 2016; Smith, 2012). As a result of this modular or “Lego-like” structure, it is possible to design rights configurations that are context-specific and tailored to particular governance scenarios. It is widely recognized and applied in property law as a valuable analytical framework for structuring markets (Merrill, 2011). A fundamental feature of the theory is the recognition of the composite and multi-layered nature of property rights: complex property rights can be decomposed into independent functional modules, which can then be combined to address specific governance concerns. Property rights theory can be reconstructed using this approach, which does not reject traditional property frameworks but adapts them to complex, multi-stakeholder situations (Merrill, 2011).

There has been significant traction for the theory in domains with complex interest structures (Bell-James, 2024; Bell-James and Lovelock, 2019; Fennell, 2019; Smith, 2012; Xiong et al., 2023). In accordance with the theoretical framework, blue carbon resource rights can be deconstructed into separate, commutable functional modules (Figure 1). The Public-Function Module formalizes the regulation and supervision functions of the State. Using satellite and ground-based tracking of carbon fluxes, it applies ecological thresholds-such as the marine ecological redline system-to prevent ecological and environmental overdraft through factual monitoring (Zeng et al., 2024). In the Private-Rights Module, rights are structured among private actors. A right of exploitation acquired through a tender or auction can be decoupled from a sea area use right. Fishers can improve their livelihoods with income rights from leasing sea area use rights, and enterprises can gain financing by pledging future revenue. In the Mixed-Authority Module, public and private interests are mediated through community participation. Benefit sharing is ensured through the use of a “basic compensation + profit-sharing” arrangement, and procedural rights such as information access, oversight and limited decision-making are granted.

It has been suggested based on the theoretical framework that an analytical object has the following features:

• It is an emerging kind of resource that is imprecisely defined for its allocation and circulation.

• Its allocation and circulation will be affected by both competent administrative agencies and market forces.

• Multiple stakeholders are involved and are required to adhere to diverse regulations.

Three provinces have been selected for blue carbon regulatory pilot programs: Fujian, Guangdong and Hainan. As the first province to enact local carbon trading regulations explicitly including blue carbon sinks, the practices of Fujian serve as a procedural and legal template to integrate a province’s blue carbon potential into the existing compliance market. To transform ecological functions into standardized and tradeable assets, Guangdong went beyond general rules by developing the first specific, actionable methodology for blue carbon resources. This is the critical “how-to” stage that defines measurement, verification and trading protocols. In contrast to other provinces, Hainan is the only one with a comprehensive plan for ocean carbon sinks, focusing on an integrated “blue carbon” concept rather than a single category like mangroves. In regulatory development, all types of ocean carbon sinks are logically related.

To bridge theory, evidence and practice, this study uses a mixed-methods approach. Three provinces are compared through multi-case comparative analysis.

Chinese authorities have developed a pilot-driven, modular approach to the governance of blue carbon since 2015, reflecting a deliberate deconsolidation of regulatory, economic and social functions. An approach such as this is consistent with the theory of multi-level governance (Purushotham and Thompson, 2026). The national policy frameworks have established blue carbon as a strategic climate tool, while encouraging regional experimentation in the allocation of rights. Consequently, three distinct local regulatory models have been developed, each representing a different combination of public regulation, private rights and community involvement (Table 1). Although this experimental, localized regulation addresses local conditions, it consequently hinders cross-provincial and cross-type blue carbon transactions.

In the market orientation under regulation model (Fujian), the public monitoring functions are progressively decoupled from the rights of exploitation. For example, Zhao’an County’s local government and competent agency are responsible for major aspects of the project. Governments issue notices for the reclaiming of sea area use rights, pay monetary compensation, restore marine ecology and then develop blue carbon resources. Similarly, in the Lianjiang case, the local government functions as a provider of public goods to reduce information costs.

With reliance on market mechanism and the support from related institutions, trading prices are escalating and relevant investors and actors are increasingly active. This model has driven significant price differentiation – with fishery carbon sink trading at 8 Chinese yuan per ton in Lianjiang County, Fujian Province (January 2022) and blue carbon trading at 106 Chinese yuan per ton (February 2023) in Ningbo City, Zhejiang Province (Hangzhou Green Carbon Consulting, 2023; Xinhua News, 2023). There is evidence of financial modularity in the form of insurance products that contribute to the stability of carbon sink assets. To mitigate the default risk associated with non-performance by carbon sink transferors in trading agreements, Xiamen City introduced blue carbon trading property safety insurance (MNW, 2024).

In the entrusted management model (Guangdong), communities retain use rights (a mixed module), while enterprises acquire exploitation rights (a private module). Using this arrangement, “blue carbon compensation funds” can be established by using fiscal allocations, carbon trading revenues and corporate sponsors specifically allocated to community livelihood transition projects, including ecotourism and ecological management training. As part of the Zhanjiang City mangrove afforestation project, villagers retain their use rights of sea areas; the government assists in entrusting professional entities with the operation, afforestation and development of the carbon sink; and the village receives a share of the revenue generated by ocean carbon sinks (China Green Carbon Foundation, 2024). Rather than transferring sea area use rights, this model emphasizes cooperation to achieve a balance between ecological and economic benefits. The increased emphasis on community participation and market mechanisms contributes to reducing compensation requirements for use disputes of sea areas, thereby avoiding controversial forced reclamations without lawful compensation and ensuring the protection of local stakeholders’ rights.

The international connection model (Hainan) prioritizes alignment with the Verified Carbon Standard (VCS) to facilitate cross-border transactions. In Hainan, specialized blue carbon management measures and technical standards have been developed at both the provincial and municipal levels. China’s first cross-border blue carbon transaction using VCS-certified assets was successfully completed by Hainan International Carbon Emissions Exchange (National Development and Reform Commission, 2023).

All three models operate primarily through local “carbon-inclusive” platforms rather than the national “China Certified Emission Reduction” mechanism (Mei et al., 2025). The private and mixed modules are not integrated into the national regulatory framework, which highlights a critical mismatch in the modular design.

The governance of blue carbon resources in China, however, exhibits three critical gaps. First, there is ambiguity about the right holder. It is common for restoration efforts to trigger disputes regarding the separation of carbon rights from the sea area use rights when the areas have existing aquaculture rights held by fishers. Second, the legal nature of ambiguity persists between modules. According to the Civil Code of China, the state owns natural resources such as tidal flats, although the function of carbon sinks and sequestration itself is not clearly defined. As a result of this conceptual ambiguity, altering existing use rights results in high institutional transaction costs. Third, duration mismatches between modules create transactional uncertainty. Fishermen were compensated for the revocation of sea area use rights, but the compensation framework failed to address long-term livelihood transitions.

Moreover, regional pilots have developed distinct modular specifications for the governance of blue carbon resources. First, regional measurement modules differ fundamentally: Fujian Province, for example, has adopted Ocean Carbon Sink Accounting Guidelines that emphasize carbon stock, whereas Hainan Province uses VCS standards making carbon credits nontransferable from one region to another. Second, the trading platform modules are grouped by region. Third, modular designs for participation and liability vary widely. Various types of community benefit modules exist, ranging from one-time economic compensation to long-term participation mechanisms. There is a significant difference between liability offset modules. Generally, blue carbon credits may be used to offset ecological damage, but the amount of credits required to offset the same ecological damage varies greatly depending on local pricing practices.

China’s evolving blue carbon governance is subjected to fundamental tensions as a result of the results presented in this study. A bottom-up, pilot-driven approach has successfully generated innovative, context-specific models for localizing the value of blue carbon, but the very fragmentation and institutional experimentation that facilitated this innovation now constitutes the primary barriers to creating a national market that is integrated and efficient. The solution to the current impasse lies not in abandoning its experimental, modular approach, but rather in systematically formalizing and integrating these modular components into a coherent, multi-level governance architecture, thereby contributing to global practice.

Three models illustrate the practical applicability and advantages of a modular governance framework. Each model represents a recombination of the core modules tailored to local ecological, economic and institutional factors. It is evident that modularity can enhance adaptability and unlock specific forms of value. This is the key insight from China’s blue carbon pilots for global governance of blue carbon resources. A successful pilot phase has been achieved for the primary purpose of identifying functional modules and testing their combinations. The transition from successful experiments to a functional national system requires a deliberate shift from “modular experimentation” to “modular system integration.” A modular architecture without standardized interfaces and an overarching integrating framework currently constrains market circulation, not modularity per se.

Consequently, there is a critical imperative to address the fragmentation that currently hinders the blue carbon market while preserving the adaptive power of local governance. In this study, we propose a tiered, integrated modular architecture that clearly allocates functions between national, provincial and local/municipal levels. Nationally, a “public-function module” needs to be solidified to provide the infrastructure for the whole system. It includes:

• enacting a National Ocean Carbon Sink Measurement Standard that combines the best elements of local methodologies and international protocols into a unified technical language that makes modules comparable and credits fungible;

• assembling a local pilot exchange network into a unified “one account, nationwide trading” network through the formalization of a blue carbon trading component within the national China Certified Emission Reduction carbon market; and

• clarifying, through legislative interpretation or supplementary regulations, the legal nature of blue carbon rights as a separate bundle of rights deriving from, but not subsumed by, state ownership of the physical substrate.

Governments should focus on adaptable implementation and regional coordination at the provincial level. For private-rights and mixed-authority modules within their jurisdiction, provincial platforms would administer the dynamic registry of rights modules, recording transactions, pledges and changes in ownership. This layer performs the functions of aggregation and verification, synchronizing data with the national platform and ensuring that local projects are in compliance with the national standard while allowing for context-specific requirements. In municipal level, the mixed-authority module takes on its most concrete form. A municipal platform or community council would be the frontline for stakeholder engagement, on-site project verification and registering rights claims from communities and enterprises. The success of this module depends on robust local modules that legitimize projects through inclusive governance.

Three specific rule designs must be developed based on this integrated governance architecture to facilitate both local collaboration and broader market participation. First, the rules for insider collaboration (community-enterprise interfaces) should be formalized to formalize the successful hybrid practices observed in the pilot projects. This includes mandating standardized benefit-sharing agreements as a prerequisite for project approval, which include template terms for revenue splits, community priority purchase options and co-management responsibilities. A legally recognized community such as blue carbon council would institutionalize the mixed-authority module, giving communities a formal voice within the governance structure and moving beyond ad hoc compensation to sustained partnerships. Second, a unified regulatory framework for external actors should formalize the mechanisms necessary to attract investment and ensure market integrity for participants in the external market. This involves clear market access standards, mandatory credit disclosure rules and a standard contract. By embedding the national measurement methodology, defining delivery and payment milestones and specifying liability rules, a predictable trading environment would be created. Third, it is essential to explicitly adopt the principle of modular liability to address the issue of cross-module liability as well as risk mitigation. In this approach, liability is determined by the function of each module: strict liability for failures in public monitoring, fault-based liability for breaches in private modules and contract-based or shared equitable liability within mixed community-management modules. Moreover, the innovative financial modularity demonstrated in the pilots must be scaled up.

This study identifies a core governance tension in China’s blue carbon governance: the conflict between traditional, exclusionary property-rights frameworks and the dynamic, multi-stakeholder nature of blue carbon. To resolve the dilemma of “one resource, multiple rights,” the modularity theory offers a robust analytical and prescriptive framework. Blue carbon governance is deconstructed into combinable functional units by applying the theory to overcome the unproductive dichotomy between environmental rights and pure property rights. Rather, it proposes a governance framework that recognizes and balances blue carbon’s dual nature as both an ecological public good and a potential economic asset.

A critical reflection acknowledges that full marketization is not necessarily the optimal endpoint for blue carbon governance. In light of the fact that blue carbon is a process-driven ecological function fraught with scientific and behavioral uncertainty, normative pathways should be pluralistic and resilient. This study has developed a modular governance framework that is capable of accommodating a variety of approaches, such as market-led, community-managed and publicly conserved.

In providing this approach, China’s evolving practice contributes a distinctive “China Paradigm” to global climate governance. It is a scalable model that progresses from decentralized, context-sensitive innovation to integrated market-ecological governance through standardized modular interfaces. Through such integrated efforts, the modular governance framework can effectively realize the significant potential of blue carbon resources for global climate change adaptation and mitigation, as well as for the achievement of the Sustainable Development Goals.