China’s Hubei outlines rules for carbon market intervention

Published 03:51 on November 3, 2015  /  Last updated at 09:16 on November 3, 2015  /  China, China's Pilot Markets  /  No Comments

Hubei’s CO2 emissions market regulator has released rules and conditions for intervening in the market to avoid wildly fluctuating carbon prices in China’s second biggest pilot scheme.

Hubei’s CO2 emissions market regulator has released rules and conditions for intervening in the market to avoid wildly fluctuating carbon prices in China’s second biggest pilot scheme.

The province’s carbon price has remained stable in the 22-28 yuan ($3.50-$4.40) range since the market was launched in Apr. 2014, although on Tuesday the price fell 7.9% to 21 yuan, its lowest level recorded so far.

With nearly 20 million allowances traded since the launch, the scheme is by far the most liquid of China’s seven pilots, and concerns over potential future price fluctuations have sparked the provincial Development and Reform Commission (DRC) to release rules for when and how it can inject fresh volume or remove excess supply.

The central government is planning a similar price stabilisation mechanism for the national market when it begins in 2017.

Hubei will set up a committee of experts from a range of government agencies, which would be called upon to evaluate whether government intervention is necessary if any of the following conditions occur:

– The price moves by its maximum allowed 10% up or down compared to the previous day’s close six times over 20 consecutive trading days.
– There is a severe demand-supply imbalance, or liquidity is “inconsistent”.
– Other issues harm market operation.

The expert committee would then draw up a proposal for how the government can intervene to buck the trend, including proposals for how many allowances should be sold into or bought back from the market.

If two-thirds of the committee members vote in favour of the proposal, it will be submitted to the DRC, which will have final say.

Any fresh supply deemed necessary would come from a government reserve, which is to be set aside annually for this purpose.

The new supply would come to market in the form of government auctions, and the exchange would be obliged to announce details at least two days before the auction is held.

Hubei auctioned off 2 million allowances before the market started, but has not sold any permits since.

By Stian Reklev – stian@carbon-pulse.com

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