China emissions prices surge as ETS starts operations

Market: Coal, Crude oil, Emissions, Metals, Natural gas, Petrochemicals
16/07/21

Prices of China emission allowances (CEAs) have risen sharply on the first day of trading in the country's national emissions market.

China's emissions trading scheme (ETS) started operations at 9.30am local time in Shanghai today, coming on line following years of preparations and several weeks later than planned. The market opened at 48 yuan/t (€6.30/t or $7.40/t) of CO2 equivalent (CO2e) and rose as high as Yn52.8/t, the maximum 10pc increase allowed under market rules.

Prices closed up by 6.7pc at Yn51.23/t. Total trading volumes were 4.1mn t for a value of Yn210mn.

The prices are well below those in the EU ETS, where December 2021 allowances traded last week at €54.25/t CO2e, around eight times higher than today China's ETS closing price at the equivalent of €6.70/t.

About 4.5bn t/yr of CO2 emissions are covered in the initial stage of the ETS, making it the world's largest such trading scheme, Huang Runqiu, China's environment and ecology minister, said at today's opening ceremony.

The ETS will initially cover only the thermal power sector, with around 2,200 coal- and gas-fired power generation plants included in the scheme. The first compliance cycle ends on 31 December this year covering emissions allowances for 2019-20.

Ten state-owned companies, accounting for a large proportion of the emissions covered, participated in today's trading. These comprised power utilities Huadian, Huaneng, Datang, China Energy Investment, SPIC and CR Power; provincial energy firms Shenergy and Zhejiang Energy; and state-controlled oil and gas giants Sinopec and PetroChina, which have captive power plants.

Some state-owned power firms have set up carbon asset management teams to represent their multiple power generation plants across the country, and to trade allowances in the ETS on their behalf.

Sinopec trading arm Unipec and PetroChina International are representing the captive power plants at the two companies' refineries and oil fields. The two firms have a total of 31 power subsidiaries covered by the ETS entities.

Market participants are not expecting much liquidity in the ETS any time soon, as only the 2,200 entities with physical power plants are allowed to participate. There is not yet any clear timeline for third-party traders, such as financial firms and independent carbon asset management companies, to enter the market.

China has been operating pilot emissions trading schemes since 2013 in provinces and cities including Beijing, Tianjin, Shanghai, Chongqing, Guangdong, Hubei and Shenzhen.

Total traded volumes in these pilot projects were 480mn t as of June, valued at Yn11.4bn ($1.76bn), while the weighted average carbon price in the past two years was around Yn40/t of CO2e, according to environment and ecology ministry (MEE) figures.

The MEE plans to expand the ETS to include other emissions-intensive sectors including steel, nonferrous metals, cement, petrochemicals, chemicals, paper and aviation in the longer term.

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