China Carbon: Monthly Review

2 September 2014 | Kun Yang

The seven pilot carbon markets were generally quiet in August, which is typical at the early stage of compliance periods according to EU ETS. Hubei emission trading system (ETS) and Guangdong ETS rank the first and the second respectively regarding trading volumes.

Shenzhen ETS

Shenzhen ETS was steady through the month. On 11 August, Shenzhen ETS recorded the first transaction of Shenzhen 2014 Allowance (SZA-2014) in the month, with prices fluctuating upwards. At the end of the month, the daily trading volume and average settlement price of SZA-2014 surpassed those of Shenzhen 2013 Allowance for several days in a row, which indicated that the market transition went on smoothly. Besides, Shenzhen ETS introduced the foreign institutional investors in August, and the relatively high market price provided them sufficient trading motivation. The allowance price and the trading volume are expected to be stable or slightly increasing in the short run considering the healthy supply and demand of SZA-2013 and SZA-2014 in the market.

Shanghai ETS

No transaction was recorded in Shanghai ETS in August. The only highlight of the month was that Shanghai ETS lowered the threshold of institutional investors’ registered capital from yuan (CNY) 10m to CNY1m. However, the market participants generally believe that the short-term influence of the change will be moderate considering the recent market performance of Shanghai ETS.

Tianjin ETS

Tianjin carbon market was inactive in August, with more than half of the trading days out of any transactions. Only 1,400 tonnes of emission allowances were traded in the whole month. Market participants are awaiting the release of Tianjin 2014 allowance allocation plan.

Beijing ETS

Carbon prices of Beijing ETS went down throughout the month with several small shocks along the way, from CNY58/tonne to CNY51/tonne, which was a 12% decline in the month. Inspired by the price fall, the trading volume in the second half of August was higher than the first half. However, the overall trading volume was still limited.

Guangdong ETS

Guangdong ETS was quite vigorous in the second and third weeks of August, especially which the average daily trading volume exceeded 10,000 tonnes in the second week. This was the market reaction to the release of 2014 Guangdong Allowance Allocation Plan and the Guangdong Development and Reform Commission’s penalty on two entities failing to offset their obligations for the 2013 compliance period. The penalty in Guangdong ETS regulation was relatively stronger than the other pilot schemes, and ICIS believed that the transactions were primarily carried out by large entities, which were short of allowances in 2013 compliance period, to apportion the cost.

Hubei ETS

Hubei ETS had the largest trading volume and transaction value among the seven pilot schemes in August while the average settlement price of Hubei ETS was medium, fluctuating between CNY22.3/tonne and CNY23.1/tonne. It was worth noticing that the trading volume decreased in the second half of the month probably because institutional and individual investors became less interested in the moderate market.

Chongqing ETS

No transactions were recorded in Chongqing ETS in August, and market players are still waiting for the results of the greenhouse gas emission investigation of the covered entities.

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