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China’s second carbon cap-and-trade starts trading

26 Nov 2013 18:21:46 | edcm

Three trades took place on the first day of China’s second carbon cap-and-trade system in Shanghai on Tuesday.

The Sinopec Shanghai Gaoqiao branch bought 5,000 Shanghai 2013 emission allowances (SHEA ‘13) from Shenneng Energy Corporation at CNY 27/tonne (€2.7/tonne) , according to data on the Shanghai environment and energy exchange.

The Shanghai Shi Dong Kou power station of Hanneng Power International bought 4,000 SHEA ‘14 from the Shanghai Coking and Chemical Corporation at CNY 26/tonne.

The Sinopec of Shanghai Petrochemical Company bought 500 SHEA ‘15 from the Shenneng Energy Corporation at CNY 25 (€2.6) per tonne.


National Development and Reform Commission is allocating carbon emission allowances in Shanghai on a one-off basis using both grandfathering based on historical emissions and benchmarking related to current activities.

Grandfathering sets out how many allowances companies in construction and industrial plants get.

The power sector, aviation and maritime sectors will get allowances based on benchmarks, according to the Carbon Emission Allowance Allocation and Management Plan from 2013 to 2015 issued by the Shanghai Development and Reform Commission (DRC) last Friday.

The Shanghai scheme will not involve any new entrants. “Because China is still a developing country, we want more companies to boom and facilitate China’s economy,” Lin Binqing at the R&D department of the Shanghai emissions trading system told ICIS in the phone interview Monday.

Like China’s first carbon trading system in Shenzhen, the Shanghai pilot is not making public the carbon cap and number of allowances handed out. “Companies require [this]not to be disclosed,” Lin said.

Unlike Shenzhen Lin said the opening price of the Shanghai ETS was decided by traders, not negotiated by the local government and enterprises.

Commission fees of the Shanghai system is 0.08%, lower than Shenzhen’s 0.6%, according to a notification issued by the Shanghai system last Sunday.

Paltry penalty, low incentive

The Shanghai ETS has a penalty of CNY 50,000-100,000 (€5,000-10,000) per tonne of CO2 emissions in place for non-compliance, while the Shenzhen equivalent’s penalty is three times the average market price.

Jian Wei Lim, an analyst with the ICIS-owned Tschach Solutions, said the fixed non-compliance fine in the Shanghai scheme might fail to be a sufficient incentive for large companies to cover their short positions.

Due to the low penalty, Lim anticipated the average price of Shanghai carbon allowances to be CNY 25 (€2.5/allowance) in the first half of 2014, a third lower than that of Shenzhen.

Future offsets limit

In the latest document, the Shanghai DRC restored a 5% limit on the offset use towards compliance, called the Chinese Certified Emissions Reductions (CCER).

The restriction on CCER use had been scrapped in the Shanghai Emission Trading management interim approach issued last week.

“The current statement does not mean we will not change it in the next phase,” Lin told ICIS.

Offsets can be used instead of allowances by companies to cover their emissions, usually at a lower cost.

MRV Timetable

The Shanghai emissions trading system specified the timeline to measure, report and verify emissions in the temporary regulation issued last Friday.

Beginning from 2013, the covered entities should measure the next-year emissions for the coming year before 31 December and report the last year’s emission plan to the Shanghai DRC before 31 March. An auditor have to submit the verification results to the Shanghai DRC before 30 April 30. The compliance companies have to fulfill their obligations in June. Ling Ma

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