German energy bourse EEX plans to launch a futures contract for Chinese carbon offsets, Carbon Pulse has learned, a move that would allow foreign traders to take positions on price moves in what is soon to be the world’s biggest carbon market.
Several sources involved in the process confirmed the exchange’s plans to launch a financially-settled contract this year, adding that the underlying product will be Chinese Certified Emissions Reductions (CCERs) eligible for use in China’s national ETS, with price assessment provided by market advisory firm ICIS-Tschach.
No further details were available, and an EEX spokeswoman declined to comment, saying only that EEX is “following the development of emissions trading schemes, in particular in China, with great interest.”
EEX’s offering, under which no actual CCERs would change hands, will allow its members to speculate in Chinese carbon without having to establish a base in the country – a necessary step to gain access to the CCER registry in which all the credits are held.
“If it’s offshore, it’s a door for foreign investors to invest in CCERs, but of course it’ll also be a good hedging tool for domestic CCER players,” one source said.
China will launch a national cap-and-trade system next year, imposing binding emissions caps on more than 10,000 companies.
Officials estimate some 3-4 billion tonnes of CO2 will be covered, making it around twice the size of the EU carbon market.
Regulated emitters will be allowed to use CCERs, which are generated from domestic emissions-reduction projects and issued by the Chinese government, to meet an as-yet-undecided share of their annual compliance obligations.
Foreign traders and investors are watching developments in the country closely in search of opportunities, as the world’s largest emitter deploys market-based mechanisms to cut its greenhouse gas output.
A handful of EU-headquartered firms have sought to open trading accounts in the carbon registries of some of China’s seven regional pilot markets in order to get an early foothold in the emerging market, with their efforts seeing varying success.
But observers say the process is lengthy, cumbersome, heavily-regulated, and unpredictable, and this may deter other interested foreign investors from trying to participate ahead of the launch of the larger national scheme.
As for Chinese market participants, the China Securities Regulatory Commission (CSRC) has yet to confirm that futures trading in any emissions units will be allowed in the national market.
The EEX contract could theoretically offer an option for big Chinese emitters to hedge trades they make in the domestic market, although taking the step to trade abroad would involve many of the same hurdles faced by EU companies looking to establish themselves in China.
Chinese companies may also be exposed to additional currency risk unless the EEX strikes a deal with the Chinese government to offer the futures contracts in RMB, which would likely dampen their interest.
By Stian Reklev – stian@carbon-pulse.com
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