Shanghai on Monday nearly doubled the number of emitters covered by its local ETS by lowering the coverage threshold and adding new sectors, becoming the world’s first carbon market to include shipping.

Starting this year, Shanghai’s emissions trading scheme will include 309 companies, a statement by the municipal Development and Reform Commission (DRC) said, compared to around 190 firms in the first three years of the pilot scheme.

While only emissions from local ship traffic will be included, Shanghai is the world’s biggest container shipping port, underlining the significance of the government’s decision.

Some 14 container companies are to be regulated, as well as a ferry operator.

The scheme’s coverage threshold was lowered to 10,000 tonnes of CO2e per year from 20,000, while emissions from buildings and other transportation-related sources including aviation and seaports were also added, the DRC said.

Most of the new participants were local industrials, although subsidiaries of foreign companies such as BASF, Honda, Mitsubishi and Volkswagen were brought under the scheme’s cap.

The inclusion of the shipping industry coincided with the local government releasing an MRV methodology for the sector, limited to “the city’s water transportation”.

Observers described the move as “exciting”, although the issue of international shipping remains in the hands of UN body the IMO.

Australia’s carbon pricing scheme included national shipping but it was shut down by former PM Tony Abbott and his coalition government before it was to be converted into an ETS.

The DRC statement did not mention how many allowances the new participants would receive, but as the companies will be included from 2016, their CO2 caps will likely be backdated to Jan. 1 and they will have to surrender permits to cover this year’s emissions by mid-2017.

The Shanghai ETS’ annual emissions cap was set at around 160 million tonnes between 2013-2015.

PRICES AND THE WAY FORWARD

Observers were hesitant to predict the long-term effect of the new sectors on the city’s carbon market.

“There will be no short-term impact, I’d say. For the price in the 2016 compliance year we will have to wait for (more information on) the position and allocation methods of shipping,” said Simon Chen, a market analyst with ICIS-Tschach.

With allowance currently valued at 11 yuan ($1.69) but untraded since Feb. 3, Shanghai’s carbon prices are the lowest price of all of China’s seven regional pilot schemes.

The DRC statement said Shanghai would continue to develop its local market based on what it expects in the national ETS, slated to start in 2017.

However, most of the new participants in the city’s ETS are unlikely to be covered by the national market due to their low emission levels, sparking speculation that Shanghai may look to continue a local trading scheme for smaller emitters from next year.

“It basically states ‘beyond 2016’ so [Shanghai is] planning for that,” said one source who wished to remain anonymous.

In December, Beijing added 600 new companies to its ETS, their emissions levels also below the expected threshold for the national market.

This prompted some observers to deduce that the capital city’s government plans to continue with a local carbon market for smaller emitters after 2017.

Note: The first version of this story incorrectly said the new number of companies in the Shanghai ETS was 354. That has been corrected to 309.

By Stian Reklev – stian@carbon-pulse.com

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