China’s domestic carbon market began trading on July 16 with the first CO2 trade made at 52.80 Yuan/mt ($8.20/mt), a relatively low carbon price compared to regulated markets in the United States and Europe.
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The highly anticipated launch of China’s carbon market paves the way for the decarbonization of its industries, starting with the power sector, and will help achieve the country’s long-term carbon neutrality goals by 2060.
Initial carbon prices, however, were relatively low due to a generous allocation of allowances in an effort to familiarize industry with carbon pricing. Going forward, allocations are expected to be tightened as China’s carbon policy takes shape and after the development of cost-effective abatement technologies.
The first online transaction of China’s Carbon Emission Allowances, or CEA, was priced at 52.80 yuan/tonne ($8.20/tonne) and the volume traded was 160,000 tonnes of CO2 at 9 1:30 a.m. on July 16, according to state broadcaster Weibo of China Central Television. social media account.
China’s national carbon trading officially started on the Shanghai Environment and Energy Exchange on July 16, and the first trade was made immediately after the official launch, according to CCTV.
“Shanghai Environment; Energy Exchange is now running online trading. How other pilot exchanges will participate; depending on upcoming government announcements,” said the spokeswoman for Beijing Environmental Exchange, one of the pilot exchanges for trading in the carbon in China.
Compared to the initial Chinese market price of $8.20/mt of CO2, European carbon prices were around $61.92/mt on July 15, while California’s cap and trade prices were $24.30/mt at the end of last week.
In the voluntary markets, eligible S&P Global Platts CORSIA carbon credits were valued at $3.05/mtCO2e on July 15, while Platts Nature-Based Projects carbon credits and Platts Household Devices carbon credits were valued at 4, $79/mtCO2e and $6.17/mtCO2e, respectively.
Participating power companies collectively account for more than 4 billion tonnes of CO2 emissions, according to the Department of the Environment. The EU ETS has around 1.6 billion tonnes of allowances in circulation, according to the European Commission’s official website.
Related box: China is rolling out a national carbon market in the electricity sector
Fight against coal
“This is the largest program of its kind in the world – and China will seek to gain experience with its operations, strengths and shortcomings before relying on it as the primary decarbonization mechanism. The latest thing it wants is massive volatility affecting the whole economy,” said Roman Kramarchuk, head of Future Energy Analytics at S&P Global Platts.
Kramarchuk said that given China’s cautiousness, very modest carbon prices can be expected with minimal impact in the short to medium term.
“A large-scale carbon price can work best when there are clear market price signals that can be transmitted across the economy for key players to react. This is not universally the case in China,” Kramarchuk added.
Platts Analytics anticipates a positive push for shifting away from coal.
“The reference [emission rate] for coal-fired power plants is basically tied to the weighted average efficiency of China’s coal fleet,” said Bruno Brunetti, head of low-carbon electricity analysis at Platts.
A large number of coal-fired generation units in China have been commissioned recently and more than 40% of the fleet are highly efficient supercritical and ultra-supercritical units, however, the carbon market seems to be designed to promote better optimization of the Chinese coal park. , added Brunetti.
He said it would be interesting to see if the Chinese carbon market would lead to the retirement of inefficient coal-fired power plants, which were already in dire financial straits, given declining load factors, in particularly if they are unable to pass on the costs of the necessary carbon allowances. , in a context of very high coal prices.
This could further drive renewables integration, keep renewables generation cuts low, and further encourage new utility-scale renewables construction.
Mark Mozur, principal analyst for energy transition at Platts, estimated that 18% of these coal-fired plants are potential candidates for uneconomic early retirement in line with China’s net zero goal in 2060, or even a warming of two degrees in 2050. prospects in line with the Paris Agreement.
“A carbon price could make that 18% figure economic based on lack of cost competitiveness rather than political strength,” Mozur added.
However, gas-fired power plants do not need to buy CEAs even if they emit more than their allocation, but can sell excess CEAs if they emit less than their allocation, which is favorable for gas consumption.
Launch of the carbon market
“According to our country’s arrangement, the national carbon emission trading will start on July 16. All participants in the national carbon market, please organize your work accordingly,” said the Shanghai Environment Energy Exchange. , which hosts the online trading platform. in an announcement at the end of July 15.
In a second announcement dated July 15, the exchange said a public account on the social media platform Wechat had been created for the National Carbon Market to post the latest market updates, including policies, advertisements and commercial data.
Shanghai Environment Energy Exchange was in charge of opening trading accounts for the carbon market as well as operating and maintaining the platform before the launch of the Chinese carbon market.
Chinese government agencies have been preparing to launch a carbon market for nearly a decade, in what is expected to be the world’s largest carbon market by volume of carbon allowances traded.
The first group of participants will include 2,225 power companies with coal and gas generation units, collectively accounting for more than 4 billion tonnes of CO2 emissions, according to previous statements from the Ministry of the Environment.
Daily carbon market price differentials in China must be limited to 10% for transactions below 100,000 tonnes of CO2 and 30% for larger transactions. The market will open for trading from 9:30 a.m. to 11:30 a.m. and 1 p.m. to 3 p.m., Monday through Friday in Shanghai, the exchange said on July 16, citing previously announced trading rules.
A national carbon emissions trading agency will eventually be responsible for arranging and carrying out the centralized trading of carbon allowances, and in the meantime, the Shanghai Environmental Energy Exchange will handle the tasks. carbon trading such as account opening, operations and maintenance.