China has launched the world’s largest
carbon market in what analysts say is a
cautious and limited attempt by the
planet’s biggest polluter to cut carbon
Buying and selling of greenhouse gas
allowances as part of China’s national
emissions trading scheme began
yesterday at the Shanghai Environment
and Energy Exchange.
Within the first half-hour, the price
per tonne of carbon dioxide equivalent
rose from Rmb48 at market open to
nearly Rmb53, nearing the daily 10 per
cent upper limit, after 160 kilotonnes
were traded at a total value of Rmb7.9m
($1.2m), Chinese state media reported.
But analysts warned that oversupply,
a limited scope and no cap on total
emissions meant the scheme was
unlikely to assume immediately its
intended “central role” in achieving
China’s goal of reaching peak carbon
emissions by 2030 and net zero
emissions by 2060.
Only China’s energy sector is included
in trading this year. Other polluting
sectors, such as steel and cement, are expected to be added in future cycles.
Even so, due to China’s reliance on
coal-fired power, the 2,225 sites covered
this year account for about 40 per cent
of the country’s total CO2 emissions.
The total volume of greenhouse gas
output covered in the scheme is about 15
per cent of global emissions or about
three times the amount covered by the
EU’s scheme, which had previously
been the world’s largest.
China’s trading scheme will at first
hand out allowances to companies for
free, rather than a portion being sold by
auction, as is common practice in most
mature carbon markets.
“If there is no move away from free
allocations, it seems inevitable that the
market will have marginal if any impact
towards decarbonising,” said Matt Gray,
co-chief executive of TransitionZero, a
London-based financial research group. Analysis by TransitionZero released
in April found that China’s emissions
trading scheme was oversupplied by
1.56bn tonnes of CO2 from 2019 to 2020,
equivalent to a year’s worth of EU ETS
emissions, making it unlikely that trading would result in a high carbon price.
The market will also at first use a
measure of carbon intensity rather than
following the EU, Californian or Canadian markets to adopt a “cap and trade”
system, where emissions allowances are
based on a single industry-wide quota.
In China, permitted emissions levels
will be calculated relative to output and
vary by the type of power plant.
The EU’s ETS faced similar oversupply until about 2016 when it introduced
market reforms to remove surplus
inventory. In recent months, EU carbon
prices have reached new highs, nearing
€60 a tonne as the EU hopes to cut
emissions by 55 per cent by 2030.
“The Chinese are just doing what the
Europeans did for the first phase of the
ETS, which is to treat it as a trial phase
where the rules are relaxed to get buy-in
from companies,” Gray said.
Additional reporting by Emma Zhou in