Shanghai emitters losing out in tight offset market as 2014 compliance deadline nears

Published 14:31 on May 7, 2015  /  Last updated at 05:38 on August 31, 2015  /  China, China's Offset Market, China's Pilot Markets  /  Comments Off on Shanghai emitters losing out in tight offset market as 2014 compliance deadline nears

China will issue fewer than 500,000 CCERs that can be used by emitters in the Shanghai ETS in time for their June 15 compliance deadline, and this supply could become even more scarce as offset sellers seek higher prices in other pilot markets, analysts said Thursday.

China will issue fewer than 500,000 CCERs that can be used by emitters in the Shanghai ETS in time for their June 15 compliance deadline, and this supply could become even more scarce as offset sellers seek higher prices in other pilot markets, analysts said Thursday.

Of the roughly 13.7 million CCERs issued in China so far, only 467,239 are eligible for use in the Shanghai ETS, according to analysts at information company Idea Carbon.

The reason is that Shanghai only allows post-2012 CCERs, while the majority of issued offsets are for older emissions cuts.

That means these low-cost offsets may be inaccessible for many companies in the Shanghai market, which has an annual cap of around 160 million tonnes of CO2e.

A majority of Shanghai ETS participants are thought to have a surplus of permits, but many are uninterested in bringing those to the market, leaving other firms – primarily electricity generators – short of emissions units and with limited compliance options.

The situation is made graver, Idea Carbon said, by the fact that sellers of CCERs from new projects primarily seek to sell them in Beijing and Shenzhen, where permit prices are around 40-50 yuan ($6.45-8.00) compared to some 26 yuan in Shanghai.

CCERs tend to be priced at a discount to permit prices.

The number of CCERs may have been increased after the NDRC, the market operator, held another issuance meeting on Apr. 29, where applications from 32 projects were under consideration.

While the decisions reached at this meeting have yet to be announced, the majority of CCERs to be issued as a result will likely take a month to hit participants’ accounts and as such are not likely to be delivered before next month’s compliance deadline for 2014 emissions.

By Stian Reklev – stian@carbon-pulse.com