China Carbon Watch: Monthly Trading Hits 10-Month High on New Plan

Trading in China’s national carbon emission allowance (CEA) market jumped in November, as a draft document provided market participants with a clearer view of their CEA deficit or surplus.

The draft of the Plan for the Determination of Caps on the 2021 and 2022 China Carbon Emission Allowances and Their Allocation was released (link in Chinese) by the Ministry of Ecology and Environment on Nov. 3.

Total monthly volume surged to nearly 7.3 million tons, the second-highest in 2022 after January. Both open market transactions and block trades increased by over sevenfold from October, registering the fourth- and fifth-highest volumes over their respective historic records.

The draft plan sets Dec. 31, 2023, as the deadline for the second compliance cycle of the CEA market, covering both 2021 and 2022. It introduces the concept of “surplus-deficit balance value.” The balance value is the base emission factor for a particular class of generators at which the actual total emission is equal to the total allowance allocation.

According to the balance value and the base emission factor in the draft plan, for general coal-fired power generators with a capacity greater than 300 megawatts, the target emission reduction is 0.12% for 2021 and 0.62% for 2022. For non-general coal-fired generators, which usually have lower capacity, these numbers are 2.9% and 3.3%, respectively.

The draft plan, however, leaves undetermined the fate of the CEA surpluses retained by entities covered in the previous compliance cycle (2019-2020).

Market prices, meanwhile, remained steady despite surging volumes in November. Open market transactions closed the month at 57.52 yuan ($8.01) per ton, slightly lower than in October. The volume-weighted average block trade price was 53.94 yuan per ton — 2.5% higher than October — while the volume-weighted average price for all trades increased 1.5% from October to 55.31 yuan per ton.

Open market transaction prices have been stable since the start of 2022 amid huge swings in daily, weekly and monthly volumes. They moved around the year-to-date weekly volume-weighted average price of 57.79 yuan per ton with a standard deviation of only 0.90 yuan per ton, suggesting that a price slightly lower than 58 yuan per ton has generally been regarded by market participants as the current benchmark CEA price.

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 editor Jonathan Breen (jonathanbreen@caixin.com)

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