China Carbon Watch: Block Trade Prices Hit Record in February Despite Subdued Trading

Month at a glance (February 2022)

China’s national carbon emissions allowance (CEA) market had a quiet February of a total monthly volume of 1.67 million tons, with most of the trading taking place during the last two trading days of the month.

Block trades were absent for most of the month but returned at the month’s end to account for 88.5% of the monthly trading. Since the market’s launch in July 2021, block trades have cumulatively accounted for 83% of the total trading volume.

With the first compliance cycle in the rearview mirror and the market waiting for policy and regulatory news about the addition of newly covered entities, financial market participants, and derivatives products, incentives for the currently covered entities to trade were largely absent. After the weeklong Lunar New Year holiday break, market participants returned with a wait-and-see attitude.

Market prices, despite generally accompanied by low trading volumes during the month, maintained the highs achieved during December just ahead of the compliance deadline of Dec. 31. The February monthly volume-weighted average price for all trades was 57.72 yuan per ton ($9.14 per ton), well above the 2021 annual average of 42.85 yuan per ton, and an increase of 10.5% over the January average.

Block trade prices set an all-time daily record during the month with a volume-weighted average price of 59 yuan per ton on Feb. 25, surpassing its open market transactions counterpart for the first time on record.

Policy updates

• Chinese regulators published a development plan for financial standardization for the 14th Five-Year Plan period (2021 to 2025).

On Feb. 8, the People’s Bank of China, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, and the China Securities Regulatory Commission jointly published the development plan aiming to build “a standards system befitting a modern financial system” by 2025. The plan outlines four areas which can benefit from standardization:

1) Modern financial management

2) Financial market system development

3) Financial products and services innovation

4) The financial industry’s digital ecosystem development

Regarding financial innovation, the plan lists, among others, the following major work areas: developing a unified green bond standards system, accelerating the development of environmental information disclosure standards for public and debt-issuing companies, developing carbon emissions verification standards for financial institutions, and establishing a standards system for ESG evaluation.

• China publishes the 2022 version of the Implementation Guidelines for Energy Conservation and Carbon Reduction for Key Sectors of High-Energy-Consumption Industries

On Feb. 11, the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Ecology and Environment, and the National Energy Administration jointly published the guidelines, aiming to:

1) Guide transformation and upgrade

2) Strengthen research in key technologies

3) Promote concentrated development

4) Accelerate the elimination of outdated technology and production capacity

The guidelines cover 17 key sectors, including the building and construction, non-ferrous metals, and steel production industries. These three high-energy-consumption industries are widely expected to be covered next by the national CEA trading system.

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