Shanghai's carbon market hits record volumes

Parvez Jabri December 8, 2014

imageBEIJING: Prices and volumes in Shanghai's fledgling carbon market have hit record levels in recent weeks after professional trading houses were allowed to enter the market.

The permit price briefly hit 36.90 yuan ($5.98) last week, the highest this year, while volumes have averaged 9,000 permits per day in recent weeks.

The improved liquidity, which according to observers was driven by the recent entry of 20 trading houses, has breathed new life into a market that after summer went two months without registering a single trade.

When the market launched in November 2013, only firms with a cap on their carbon emissions were allowed to participate.

Shanghai is one of seven cities and provinces hosting pilot carbon markets ahead of a national scheme to be launched in 2016, the main pillar in China's efforts to stabilise its greenhouse gas emissions by 2030.

Despite the recent positive trend in Shanghai, the pilot markets remain illiquid and are so far not driving the investments needed for China to meet its 2020 target of cutting carbon per unit of GDP to 40-45 percent below 2005 levels.

The government must set up a range of national and regional funds in order to link the carbon market with China's financial market and attract investment in cleaner energy, said a report released by Beijing-based Central University of Finance and Economics this weekend.

The report was presented at China's official pavilion at ongoing UN climate talks in Lima.

“Government-backed carbon funds can direct investments from the public fund, raised from permit auctions and fiscal subsidies, into low carbon projects,” Chen Bo, one of the report's authors, told Reuters.

In January, the authors said China's spending to meet its climate target would fall short by some 2 trillion yuan ($330 bln) annually by 2020 unless markets are used more successfully.

Southern Guangdong province, which hosts China's biggest pilot CO2 market, is currently planning a government-backed fund to spur clean energy investments.

The province earned 667 million yuan from auctioning carbon permits to big emitters last year.

Copyright Reuters, 2014

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