China's national carbon market is running smoothly since its launch on July 16, attracting the attention of an increasing number of enterprises. The pricing for carbon quotas has been in line with expectations. However, industry insiders call for the introduction of institutional investors to facilitate overall transactions. According to the Shanghai Environment and Energy Exchange, the price for carbon quotas stood at CNY52.96 per ton at the closure on August 6, an increase of about 10% compared with the opening price of CNY48 on the first trading day. However, trading of carbon quota has been decreasing, with the total volume reaching approximately 6.14 million tons since its opening about 20 days ago, a stark contrast to the trading volume of 4.1 million tons on the first trading day. Carbon dioxide emissions linked to more than 2,000 power companies in the first trading group had been estimated to exceed 4 billion tons per year, making the market the world's largest in greenhouse gas emissions.
Industry insiders said that there is a noticeable wait-and-see attitude in the market. Currently, enterprises are assigned quotas for carbon emissions for free and therefore they need to buy only a small number of permits, making them less motivated to make transactions, Lin Boqiang, Director of the China Center for Energy Economics Research at Xiamen University, told the Global Times. Power enterprises may not be able to focus their attention on carbon trading during the summer electricity consumption peak, especially in the face of challenges created by high coal prices.
Meanwhile, as was seen during pilot operations, carbon trading may be delayed because enterprises' unfamiliarity with the processes and surplus emission allowances, Chen Zhibin, Senior Consultant from Sinocarbon Innovation & Investment Co, told the Global Times. “A decisive factor of carbon market trading is how many quotas companies are assigned. Given that the authorities still carry out assessment of these enterprises' power supply and workload in 2020 and how many carbon emission quotas they'll obtain in 2021, they couldn't go to the market,” Chen said. In a bid to boost market activity, experts said that policies for assigning carbon emission quotas and the introduction of more trading entities, including more institutional traders, are needed. “One way to attract more investors is to encourage the entry of state-owned capital, since the current low carbon trading volumes are not attractive enough to many institutional investors,” Lin said, noting that supervision should be strengthened accordingly to prevent potential risks.
Meanwhile, experts have called for efforts to prevent speculation and excessive financialization of the national carbon trading market. The fundamental objective of the program is to help reduce emissions. Zhang Xiliang, Director of the Institute for Energy, Environment and Economy of Tsinghua University, said that the country's carbon trading market will introduce more industries, including steel, petroleum and non-ferrous metals in the future, with overall coverage of carbon emissions expected to exceed 7 billion tons a year, or over 70% of the country's total carbon emissions. He said that the country's carbon prices will likely rise to USD8-10 per ton during the 14th Five Year Plan period (2021-25) and USD15 per ton between 2026-30, considering the growing cost in reducing emissions to achieve the goal of peaking carbon dioxide emissions by 2030 and achieving carbon neutrality by 2060.
Relevant government agencies and industry associations are boosting efforts to determine the carbon emissions for key industries in advance of their introduction into the national carbon trading market. The Ministry of Ecology and Environment said on July 27 that authorities will conduct a pilot program in key industrial regions, including in Hebei, Jilin and Zhejiang provinces, to assess carbon emissions in industries from power to petrochemicals.
Peng Wensheng, Chief Economist at China International Capital Corp, projected that green investment opportunities worth CNY140 trillion will be created in China over the next 40 years. He suggested that the development of green finance should be facilitated in five areas, including setting up a universal Chinese green standard, formulating an obligatory green information disclosure mechanism, and improving incentive policies to boost the comprehensive development of the green financial market, the Global Times reports.
