China Carbon Watch (March): Record Drawdown in Trading Volume

Carbon market update (March 2022)

Trading volume in China’s national carbon emissions allowance (CEA) market continued to subside from December’s high of 135.6 million tons to a monthly total volume of 708,554 tons, the lowest since the launch of trading in July.

Block trades were absent for most of the month with activities on only three of the 23 trading days, but still accounting for 76.3% of the monthly total volume.

According to some market observers, covered entities have been mostly waiting for the trading scheme regulator, the Ministry of Ecology and Environment (MEE), to announce its CEA distribution plan for the current compliance cycle, which will allow the entities to budget their CEA for the year, including trading needs. The pandemic lockdowns in Shanghai since March may have also contributed to the lack of activity in the market.

Market prices held up well amid the low volumes, with open market transactions closing March at 58.55 yuan ($9.20) per ton, up 1.4% from a month earlier.

Daily prices for both trade types fluctuated in a narrow range, showing little volatility. The March monthly volume-weighted average price for all trades was at 56.41 yuan per ton, down 2.3% from February, pulled down by a steeper 3.2% decrease in the average block trade price.

Policy update

• The National Development and Reform Commission and the National Energy Administration jointly published the Mid- and Long-Term Development Plan for the Hydrogen Energy Industry (2021-2035).

The plan was released on March 23. It establishes the government’s position that hydrogen-based energy is a key new strategic industry and a new growth point for building a green low-carbon industrial regime. The plan has set the following stage goals for the hydrogen industry:

▫ By 2025, the number of fuel-cell vehicles in use will reach about 50,000 units, a batch of hydrogen-fueling stations will be built, hydrogen produced with renewable energy will reach 100,000 tons to 200,000 tons per year, and carbon dioxide emissions will be reduced 1 million to 2 million tons per year (as a result of hydrogen energy use).

▫ By 2030, relatively comprehensive systems of clean energy-based hydrogen production will be formed, which will lend strong support to the carbon peaking goal.

▫ By 2035, a diverse application ecosystem of hydrogen energy will be established, and the proportion of hydrogen production with renewable energy in terminal energy consumption will be increased significantly.

Market news

• The MEE issued a notice on greenhouse gas (GHG) emissions reporting.

On March 15, the MEE notified provincial-level environmental agencies that they should require key power generation entities to submit their 2021 annual GHG emissions reports by March 31.

These entities are so-called “key emitters” whose GHG emissions were at or greater than 26,000 tons of carbon dioxide equivalent (or comprehensive energy consumption greater than 10,000 tons of standard coal) in either 2020 or 2021. This 26,000-ton emission threshold was used to identify currently covered entities by the national CEA trading scheme.

The notice requires provincial-level environmental agencies to take the lead in verifying the reports, although third-party verification service firms can be contracted. The completion date for the verification is June 30.

The notice also requires GHG emitting entities in seven non-power generation industrial sectors to submit their 2021 GHG emissions reports and supporting documents by Sept. 30. Again, the threshold of 26,000 tons of carbon dioxide equivalent in either 2020 or 2021 is used for entities in these seven sectors: petrochemicals, chemicals, building materials, steel, nonferrous metals, paper and civil aviation. The verification of reports from these entities is set to be completed by Dec. 31.

• The MEE exposed irregularities in data quality control by third-party service providers in the national CEA market.

In a press conference on March 30, MEE spokesperson Liu Youbin stated that the MEE led inspection missions to 47 cities during the last three months of 2021, which focused on the quality of the mandatory carbon emissions reports submitted by covered entities in relation to CEA compliance. The inspections revealed a number of prominent rule violations. In particular, several third-party service providers (e.g., technical consultants and data verifiers) were found to have either forged emissions data for covered entities or neglected verifying the reported data.

Liu indicated that the MEE is actively working with the Ministry of Justice to issue the Interim Regulation for the Management of Carbon Emissions Trading, to replace the Administrative Measures for Carbon Emission Trading (Trial), the current regulatory basis for the national CEA market. The interim regulation will have a much stronger legal basis, equivalent in authority to a law passed by the National People’s Congress, the nation’s top legislative body. With the interim regulation, more detailed requirements can be set for service providers and stiffer penalties can be imposed for violating the requirements.

Carbon news

• China 2021 GDP carbon intensity was lowered by 3.8% from 2020.

On Feb. 28, the National Bureau of Statistics published the 2021 National Economic and Social Development Statistics Bulletin. China’s GDP grew 8.1% from 2020 while carbon emissions per 10,000 yuan GDP decreased by 3.8%. As a binding goal of China’s “dual-carbon strategy,” the Chinese government has pledged to reduce its GDP-based carbon intensity by 18% by 2025 from 2020 levels.

The bulletin said that total energy consumption increased by 5.2%, supported by a 4.6% increase in coal consumption, 4.1% increase in crude oil consumption, 12.5% increase in natural gas consumption, as well as a 10.3% increase in electricity consumption. Clean energy (including natural gas, and hydro, nuclear, wind, and solar power) accounted for 25.5% of the total energy consumption, up 1.2 percentage points from 2020.

Bai Bo is executive chairman and co-founder of the Singapore-based MetaVerse Green Exchange.

The analysis and opinions expressed in third-party articles are those of the authors and do not necessarily reflect the positions of Caixin.

Contact editors Lin Jinbing (jinbinglin@caixin.com) and Bertrand Teo (bertrandteo@caixin.com)

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