The Shanghai carbon exchange and the Shanghai Clearing House are working on China’s first on-exchange CO2 allowance forward contract, which they hope to launch in September, the exchange announced Tuesday.

China’s seven pilot carbon markets have so far been confined to spot trading, but Shanghai plans to change that later this year by introducing a forward contract, exchange officials told a Shanghai conference.

The exchange and the Shanghai Clearing House are developing the contract together, in a move they hope will attract interest from trading houses.

“The contract will include all main elements such as underlying assets, physical delivery, delivery date and so on,” Jin Li, the exchange’s assistant general manager, told Carbon Pulse.

“The forward contract will trade on the exchange with daily closing prices published.”

The Guangdong last month released rules for how to deal with OTC forward trades, but if authorities approve Shanghai’s move it would be the first of China’s markets with on-exchange forward trading.

Analysts say the lack of forward trading has been one of the main reasons for the poor liquidity in China’s pilot markets, mainly because it hampers investor interest and fails to provide emitters with a clear signal for future CO2 costs.

By Stian Reklev – stian@carbon-pulse.com

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