The first day’s trading in what will be by far the largest carbon market in China began briskly with pricing in line with expectations, as Beijing continues its drive to slow its rapid growth of heat-trapping emissions.
Volumes in Guangdong’s carbon permit market, expected to be the world’s second largest in terms of carbon dioxide covered, in early trade surpassed full-day totals during the launches of the country’s three other carbon exchanges.
Reuters Newsagency reports China, the world’s biggest emitter of greenhouse gases, wants to use markets to achieve its target to cut emissions per unit of GDP to 40-45 per cent below 2005 levels by 2020 at the lowest possible cost.
Beijing, Shanghai and Shenzhen have already opened markets of their own, with Hubei province and the cities of Chongqing and Tianjin expected to follow in the next few months.
The debut trade on the China Emissions Exchange in Guangzhou went through in line with market expectations at US$10.04, with cement firm Hailuo buying 20,000 carbon permits from the new energy arm of state-owned power producer Huadian Energy.
That was followed by a raft of other deals for a total of 120,000 permits, known as Guangdong Emissions Allowances (GDEAs), in the first 20 minutes of the market, all at US$10.04 each.
China’s other emissions markets each saw around half that volume during their entire debut days.
The price level matched expectations, following a government auction of three million permits sold at US$10.04, the official price floor for auctions, on December 16.
However, some observers warned against the risk of price volatility in the longer term.
Emissions markets are often very price-sensitive in early stages, as seen in markets in Europe, New Zealand and Shenzhen.
“The biggest concern for companies is how to manage volatility risks. That’s more important than who and how much traded today,” said Jeff Huang, China director of the Intercontinental Exchange.
Guangdong is home to more than 100 million people and has an economy bigger than Indonesia’s.
It is set to become China’s central carbon trading hub in the near term as its number of carbon permits dwarfs the combined volume in Beijing, Shanghai and Shenzhen.
Globally it will be smaller than only the European Union.
Guangdong’s carbon scheme caps CO2 emissions from 242 of the province’s major power generators and cement, iron and steel producers at 350 million tonnes a year, with a further 38 million tonnes set aside in reserves for new entrants and potential adjustments.
Companies are forced to pay for three per cent of their expected emissions in the first year of the scheme, with that share gradually rising in the future.
The Guangdong government said this week that it would expand the market to cover five new sectors, including textiles, paper production and metals, although it gave no timeline.
In Shenzhen, permits currently trade at US$12.10, with prices pushed up on small volumes by private speculators after the market opened in June.
Beijing permits trade around US$8.23, while in Shanghai they change hands at around US$4.11.
In comparison, allowances in the EU market currently sell at $6.81.
Combined, China’s seven markets will regulate around 800 million tonnes of CO2, roughly equal to Germany’s annual emissions.
