The Guangdong carbon exchange is to allow 47 major corporations to hold and trade carbon on behalf of all of their plants, it said on Thursday in a further effort to boost liquidity.
Several dozen major Chinese companies have multiple installations covered by most or all of China’s seven pilot carbon markets, but are unable to manage their positions on a corporation-wide level as allowances are required to be held and managed by the local entities covered by each scheme.
This has contributed to the low liquidity across the Chinese pilots, as few companies have been prepared to set up multiple emissions trading desks.
Thursday’s rule change allows companies with net assets of more than 5 million yuan ($760,000) to manage Guangdong Emissions Allowances (GDAs) from one centralised desk, although these firms can hold no more than half of the free GDAs allocated to each installation for the current emissions year.
There is no limit on surplus GDAs carried over from previous years.
Each firm’s trustees will have to pay a primary margin of more than 20% of the permits’ market value, based on the daily closing price, although this may be limited to a total of 5 million yuan.
Among the major emitters able to benefit from the new rules are some of China’s biggest power, oil, coal and nuclear companies including China Power Investment Corporation, Guodian, Huadian, Datang, Huaneng, CNOOC, CNPC, Shenhua, and China General Nuclear.
A statement from the Guangdong exchange said some brokerages had also been allowed to engage in custodial trading, but it did not identify which ones.
LOW LIQUIDITY
The Guangdong emissions trading scheme is the biggest of China’s seven pilot markets, issuing more than 400 million GDAs annually.
But volumes have been dismal with only some 8.5 million GDAs changing hands in the secondary market since the market began in Dec. 2013, mainly due to over-allocation, especially in the scheme’s first year, and a lack of experience and interest in environmental markets.
The Guangdong exchange has carried out a number of reforms in recent months to make trading more attractive, especially for financial firms, but the efforts have yielded mixed results.
- In August, it loosened price control regulations for big bilateral deals, hoping to tempt trading houses to take bigger positions in the market.
- In September, it opened up for repo deals, and in December it outlined rules that allowed banks to offer loans using GDAs as collateral.
- This week, it became the first of the seven pilots to green-light OTC forward trading.
The exchange had some initial success with nearly 5 million allowances traded in Q3 last year, primarily driven by a small group of foreign companies.
But the trend didn’t last and in Q4 just 192,000 allowances changed hands.
By Stian Reklev – stian@carbon-pulse.com
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