CN Markets: CEAs remain rangebound, CCER trading volume plunges amid limited supply

Published 09:42 on November 11, 2022  /  Last updated at 21:39 on November 23, 2022  /  Asia Pacific, China  /  No Comments

Allowance prices in China’s national emissions trading scheme remained stable over the past week despite the update on the long-awaited allowance allocation plan, while the offset market saw a plunge in trading volume amid severely limited supply due to policy uncertainty.

Allowance prices in China’s national emissions trading scheme remained stable over the past week despite the update on the long-awaited allowance allocation plan, while the offset market saw a plunge in trading volume amid severely limited supply due to policy uncertainty.

Spot Carbon Emissions Allowances (CEAs) closed Thursday on the Shanghai Environment and Energy Exchange at 58 yuan ($8.16), with prices sticking to the range of 57.70-58.20 yuan throughout the past week, exchange data showed. 

Some 617,000 allowances changed hands over the Nov. 4-10 period, down from roughly 833,000 units seen in the previous week.

Trading volume for the period was mostly supported by one 480,000-unit block trade on Friday, valued at 28.08 million yuan.

Despite the latest update on allowance allocation, the long lead-time to the next compliance deadline – which has been set at Dec. 31, 2023 – has inevitably tempered the market response to the draft, observers said.

In addition, doubts remain as to how the Ministry of Ecology and Environment (MEE) will solve the lasting oversupply issue and allow emitters to carry forward unused permits for 2019 and 2020.

According to the draft, the regulations for carrying forward unused permits will be announced by the MEE separately, and “soft management” will be done to reduce the pressure for emitters to meet compliance if necessary.

“While plenty of big power plants still have significant CEA surplus, they might prefer to hold on and wait for more policy clarity,” one observer noted.

LIMITED CCER SUPPLY

Meanwhile, the offset market saw its liquidity reach its lowest levels in over two years, with only around 9,400 Chinese Certified Emissions Reductions (CCERs) trading across all platforms, down from 32,000 units the previous week.

The majority of CCERs were traded on the Tianjin bourse, exchange data showed.

“The drop in trading volume was more or less expected, as most of the offsets in the market have been consumed for compliance … not many units are left in circulation,” one analyst said.

Demand for CCER credits is thought to be highly associated with allowance allocation in the Chinese compliance market, given that regulated entities under the ETS are allowed to use the credits against up to 5% of their annual verified emissions.

Little is known about what the Chinese offset market will look like going forward and which project types will be eligible in the future, though the environment ministry has said it would prioritise CCERs from sinks, methane utilisation, and renewable energy.

The national offset programme has been suspended since 2017. No CCER projects, methodologies, or issuances have been approved since then.

“That means it’s difficult for market participants to make predictions on the supply side, even though demand is generally expected to continue growing in the coming years,” the analyst said.

The table below shows daily prices and volumes in China’s carbon market over Nov.4-10. CEA data is from the Shanghai Environment and Energy Exchange. CCER volumes represent aggregate numbers from the nine carbon exchanges across China that offer offset trading: Beijing, Chongqing, Fujian, Guangdong, Hubei, Shanghai, Sichuan, Shenzhen, and Tianjin.

 

 

By Chia-Erh Kuo – chia-erh@carbon-pulse.com