China likely to allow banking of pilot CO2 permits, reduce free allocation

Published 03:40 on March 23, 2016  /  Last updated at 15:59 on March 23, 2016  /  China, China's National ETS, China's Pilot Markets  /  No Comments

China is likely to let allowances from the pilot carbon markets be banked to the national emissions trading system, but at the expense of reduced allocation levels, the market’s lead architect said Wednesday.

China is likely to let allowances from the pilot carbon markets be banked to the national emissions trading system, but at the expense of reduced allocation levels, the market’s lead architect said Wednesday.

Chinese carbon traders are awaiting clarity on the fate of millions of surplus allowances from the seven regional pilots when the national ETS launches next year.

Ruling the units ineligible would likely see pilot prices drop to near zero for the next 15 months.

Duan Maosheng, a Tsinghua University professor, former CDM EB chair, and the chief architect of the national market, said at least some of the pilot allowances were likely to be bankable, but that in return the NDRC would probably reduce the amount of free permits distributed in the pilot regions in the interim.

Although no decision has been made, there is a consensus that the pilot allowances cannot be flatly disallowed in the national market, he told a webinar hosted by the Ecologic Institute

“We think it is necessary that we give some kind of value to the allowances issued by the pilot authorities. That is clear. The only issue is what kind of conditions we will put on the banking of those allowances,” Duan said.

“I don’t think it’s appropriate that we say that the national system will accept the allowances issued by the pilot authorities without any conditions. If this is the case, we are worried that maybe pilot authorities now will issue an abundance of allowances,” he added.

A final clarification might bring a welcome boost to the seven pilots, where prices have steadily weakened after last summer’s compliance rush.

Recent months have seen a growing trend of major market players engaging in so-called buy-back deals, in what observers say are bets that prices will continue to drop.

Duan said the specifics of the banking mechanism remain undecided.

“If some amount of allowances will be banked to the national system then maybe some amount of allowances will be reduced from the free allocation to be assigned to the provinces. But whether it’s a 1:1 ratio or whether it’s 50%, that is something we are still discussing,” he added.

He also told the webinar that while China’s ETS would have a de-facto cap, it would assign a very important role to post-adjustments, a move designed to avoid handing out too many free permits to emitters whose production levels fall below expected levels.

An audio recording of Duan’s presentation of the status of the national ETS is available here.

By Stian Reklev – stian@carbon-pulse.com

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