APRIL 2023 Monthly_China national ETS

During April, China Emission Allowances (CEAs) prices followed a downward trend, trading within a slightly wider range (RMB 50.52-56/t) compared to that of March (RMB 55-57/t). Prices through this period averaged RMB 54.97/t before settling 1.79 % lower month-on-month. Due to the Qingming Festival, there were in total only 19 trading days throughout April. The daily closing price of CEAs recorded on 6 April was merely RMB 50.52/t, the lowest level since the beginning of 2022 – the start of the national ETS second compliance cycle. After reaching this low, CEAs prices quickly bounced back and maintained at RMB 56/t during the period from 10 to 19 April, before fluctuating between RMB 53.4/t and RMB 55/t on the last trading days.

The overall trading activities continued to decrease with merely 1.05 million tonnes changing hands, a drop of around 19.8 % compared to March. As in previous months, the lion’s share of the traded volume came from bulk transactions occurring on three trading days, which together accounted for 95.2 % of the total volume. Largely symbolic transactions occurred on 12 of the total 19 trading days with daily traded volumes of up to around 100 tonnes. This is in line with our forecast mentioned in the 

, that given the lack of banking regulations, it remains unclear whether unused permits for 2019 and 2020 can be carried forward. As a result, market participants continued to take a wait-and-see attitude, leading to no uptick in CEAs prices and volumes. The long lead time to the next compliance deadline, and recent policy developments regarding the CCER relaunch are again other factors leading to the sluggishness in the national market.

China ETS pilots - Average Price (March and April 2023)

China ETS pilots - Traded Volume (March and April 2023)

China ETS pilots - Daily price comparison (April 2023)

China ETS pilots - Daily volume comparison (April 2023)

According to exchange data released by the China Beijing Green Exchange (CBGEX), Beijing Emission Allowances (BEAs) experienced a highly volatile April. Following seven days without trading activity, BEAs prices dropped precipitously to merely RMB 74/t on 13 April, a steep fall of nearly 16.9 % compared to last month’s level. A quick rebound to RMB 106.8/t occurred on 17 April, followed again by a decrease to RMB 86/t during the last trading days. The sharp fluctuation of BEAs prices and extreme lack of liquidity in the Beijing market during April marked a continuation of the trajectory observed in previous months, which occurred after the CBGEX organised an auction shortly ahead of the compliance deadline (end of November 2022). After reaching the highest level of RMB 34/t last month, Chongqing Emission Allowances (CQEAs) gradually dropped to RMB 29.5/t on 10 April. Contrarily, closing prices of carbon allowances in several regional pilots slightly increased compared to March: Shanghai Emission Allowances (SHEAs) (RMB 58-61/t), Shenzhen Emission Allowances (SZEAs) (RMB 58-62/t), Tianjin Emission Allowances (TJEAs) (RMB 31-32/t) and Fujian Emission Allowances (FJEAs) (RMB 28-38/t). Meanwhile, Guangdong Emission Allowances (GDEAs) prices reached a plateau, stalling at RMB 83-84/t level. Prices of Hubei Emission Allowances (HBEAs) were also stable without much movement (RMB 46-48/t).

During April, average prices of the eight regional markets maintained their same levels as in March, continuing to vary significantly. BEAs and GDEAs ranked first and second with an average of RMB 93.51/t and 83.58/t respectively, followed by the average carbon prices in other active markets such as SZEAs (RMB 60.16/t), SHEAs (RMB 59.93/t), and HBEAs (RMB 47.07/t).

Traded volumes in all regional markets increased significantly in April. Their total volume reached 6.31 million tonnes, more than twice that of March (2.95 million tonnes). The Fujian market ranked first with 2.94 million tonnes, accounting for 46.6 % of the total traded volume. The Tianjin and Hubei markets ranked second and third with 1.82 million and 539.77 thousand tonnes, respectively.

In early March, the Department of Ecology and Environment of Hubei Province completed the pre-allocation of 100 million tonnes of allowances to nearly three hundred local enterprises. Together with this, at the end of March, the China Hubei Emission Exchange issued a new policy to effectively reduce the transaction costs of market participants under the Hubei pilot. Similarly, on 12 April, the Fujian Provincial Development and Reform Commission released the “

Letter on Approving Service Charges for Carbon Emissions Trading and Energy Use Rights Trading

” which introduces lower transaction fees from the current level of 4 % of the transaction amount to only 1.5 % for both transaction parties. These above-mentioned policies helped stimulate trading activities under the Chinese pilots, leading to a sharp increase in their traded volume in April.

Market liquidity improved in most regional pilots. As in March, the Guangdong, Hubei and Fujian markets continued to have transactions for all 19 trading days, followed by 17 and 12 active days reported by the Shanghai and Shenzhen pilots, respectively. In the Fujian market, while substantial transactions occurred on most trading days, there were four days with single-digit volumes. As revealed in an announcement by the Fujian Haixia Equity Exchange, this was attributed to 

 in the trading system which caused temporary suspensions of carbon emissions rights transactions under the Fujian pilot. Meanwhile, liquidity in the Beijing market remained drained with only marginal volumes recorded on three trading days. After its brief recovery in March, liquidity in the Chongqing market dropped again in April with double-digit volumes reported on a total of two trading days.

CCER volume (April 2023)

Since its suspension in March 2017, the ChinaCertified Emissions Reductions (CCERs) - China’s offsetting scheme has yet to be restarted. This has led to scarce supply of CCER units in the domestic market. Thus, as predicted in our 

, no significant uptick in trade volumes was observed in April. Only 341.4 thousand tonnes of CCERs were traded across platforms, down 55.87 % compared to March. With 222.64 thousand tonnes of CCERs, accounting for 65.2 % of the total CCERs traded in February, the Tianjin pilot continued to be the largest CCER trading bourse. The Shenzhen and Sichuan markets respectively rank second and third, with 66.75 and 31.5 thousand tonnes of CCERs changing hands. No CCERs were traded in the Guangdong, Hubei, Chongqing or Fujian markets.

On 7 April, during the second China International Symposium on Climate Investment and Financing, 

, deputy director of the Department of Climate Change, Ministry of Ecology and Environment (MEE) underlined the need to further develop the national ETS by expanding its scope to other carbon-intensive industries, and diversifying trading products and methods. His statements were echoed by 

, Minister of the MEE on 24 April during the second meeting of the Standing Committee of the 14th National People’s Congress, that China has been committed to promoting its green and low-carbon development, as well as the smooth operation of its national ETS.

On 12 April, the National Energy Administration (NEA) issued the 

. This document underscores China’s commitments in deeply strengthening renewable energy, speeding up ETS linkages and the achievement of China’s dual carbon targets.

On 21 April, the MEE, National Development and Reform Commission (NDRC) and other nine departments jointly issued the “

Guidelines for the Construction of Carbon Peak, Carbon Neutral Standard System

”. The system includes four first-level subsystems, 15 second-level subsystems, and 63 third-level subsystems. Four standards are proposed, namely the basic general, carbon emission reduction, carbon removal, and market-oriented mechanism standards. The development of these subsystems and standards is aimed to provide coordinated and comprehensive support to the realisation of carbon neutrality targets by key industries. 

At a regional level, in accordance with the “Management Measures for Carbon Emission Rights Trading in Shenzhen”, the China Emissions Exchange (Shenzhen) recently organised the sampling and key inspections of carbon emission reports and verification reports for 2021. This inspection involves 171 carbon emission verification reports, and 25 carbon verification institutions. On 4 April, the China Emissions Exchange (Shenzhen) released a 

 on the results of this quality inspection. Most reports were assessed to be in conformity with verification criteria with only a modest number of key emission units urged to rectify their unqualified reports.

On 17 April, the Guangdong Provincial Department of Ecology and Environment issued a notice to publicly solicited opinions on the “

Carbon Allowance Mortgage Financing (Draft for Review)

”. To tap into the potential of carbon finance, the draft guidelines introduce an option of arranging bank loans using carbon permits as collateral. If approved, these guidelines will provide a legal framework for the broader practice of securing loans by carbon emission allowances, which are currently used by only a handful of 

 in Guangdong. Relevant units and individuals are requested to send their feedback to the draft during the period from 17 April to 17 May 2023.

On 24 April, the Shanghai Municipal Development and Reform Commission released a 

 on the key work arrangements for 2023 to achieve energy conservation, emission reduction, and China’s dual carbon targets. The notice clarifies ten major steps to fulfil these targets, notably the establishment of a carbon neutralisation digital platform, and the completion of the 2022 greenhouse gas emissions (GHGs) inventory compilation in all districts.

Regarding carbon offsetting, the Ministry of Natural Resources and other three departments on 22 April jointly rolled out the “

Implementation Plan for Consolidating and Improving Ecosystem Carbon Sink Capability

”. This plan proposes to take concrete actions in consolidating the carbon sink capacity system through the management of lakes, grassland, and deserts. Furthermore, it stresses an urgent need to establish an ecosystem carbon sink monitoring and accounting system, as well as to strengthen scientific-technological support and international cooperation.

Looking forward, we continue to have a neutral to light bearish outlook for the national ETS. So far, the MEE has yet to announce further details regarding banking rules, leaving the market participants with few incentives for any substantial purchasing in the short term. The lack of such important regulation would continue to weigh on CEAs prices and volumes. We expect that confirming the sideways trend, the total trade volume would be mainly supported by bulk transactions while symbolic transactions would occur on several trading days.

Mirroring the national development, the lack of liquidity would continue to pervade pilots such as Beijing, Chongqing and Shanghai. Fluctuating prices would also be observed in these regional markets over the next months. Meanwhile, as in April, we may also witness the improvements in prices of carbon allowances under other pilots in May. Nevertheless, we expect their traded volumes to reflect the tidal effect, that transactions will only surge shortly before next the compliance deadlines.

Given the current tight supply-demand dynamics in China’s offsetting scheme, we expect no significant uptick in CCER trade volume in the near term. Yet, despite the largely constrained activities in this market, we have an optimistic outlook that the relaunch of this offsetting scheme is already around the corner. As the Beijing pilot in early February announced its 

completion of the registration and trading systems designed for the CCER scheme

, and the MEE successfully gathered proposals regarding offset methodologies by 

, the long-awaited restart of the CCER issuance will take place soon, most likely before the end of this year.

April 2023 MONTHLY CHINA ABRE

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In the absence of banking rules, China Emission Allowances (CEAs) prices followed a downward trend, averaging RMB 54.97/t before settling 1.79 % lower month-on-month. Liquidity in the national ETS continued to drop with largely symbolic transactions reported on most trading days. Contrarily, closing prices in most regional pilots improved slightly. The total volume traded in eight pilot markets increased significantly during April. Meanwhile, liquidity in the offset market dropped sharply. The majority of China Certified Emission Reductions (CCERs) were traded in the Tianjin bourse. No CCERs were traded in the Guangdong, Hubei, Chongqing or Fujian markets. Given the long lead time to the next compliance deadline, as well as the lack of regulation updates, we continue to have a neutral to light bearish outlook for the national ETS.

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April 2023: CEAs hit the lowest price since 2022 due to lack of banking rules

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