Allowances in the Shanghai emissions trading scheme shed 2.4% on Friday to fall to new record lows, in a market rich on supply but poor on clarity regarding what the next trading period will bring.

The SHEA spot contract fell another 0.20 yuan to close at 8.30 yuan ($1.29), a new all-time low after the previous record was set on Monday.

“My guess is the market is getting nervous towards the end of the first trading period. They don’t know what to expect for the second,” one market participant told Carbon Pulse.

The first three-year trading period ends in June, when emitters surrender allowances to cover their 2015 emissions.

The Shanghai government last month confirmed that the market will continue after that, possibly even after the national ETS begins in 2017.

But very little is known about how the pilot markets will convert to the nationwide ETS, and traders are unnerved about the fate of the regional schemes’ surplus allowances.

At the same time, Shanghai’s supply is plentiful after some speculative traders borrowed 2.4 million SHEAs to bet on the market in the months to compliance, while emissions continue to drop.

Meanwhile, the Beijing market saw prices jump a staggering 47% this week to close Friday at 51 yuan, a two-month high.

However, the rise came on the back of a handful of small deals totaling only 956 allowances, and huge price fluctuations are not uncommon in the capital’s CO2 market.

By Stian Reklev – stian@carbon-pulse.com

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