Guangdong firms finish ETS compliance early

Published 12:30 on June 19, 2015  /  Last updated at 17:33 on June 19, 2015  /  China, China's Pilot Markets  /  No Comments

All but one emitter in the Guangdong ETS had surrendered allowances to cover for their 2014 emissions by Friday , meaning China’s biggest carbon market avoided a repeat of last year when the compliance deadline had to be pushed back as dozens of manufacturers threatened not to participate.

All but one emitter in the Guangdong ETS had surrendered allowances to cover for their 2014 emissions by Friday , meaning China’s biggest carbon market avoided a repeat of last year when the compliance deadline had to be pushed back as dozens of manufacturers threatened not to participate.

The China Emissions Exchange in Guangzhou made the announcement Friday afternoon, after last minute demands earlier in the week had led to a record near-1 million allowances changing hands.

On Friday market activity was back to normal, with 2,000 allowances traded and prices slipping 10% to close at 16.35 yuan ($2.63).

Carbon markets are only at the trial stage in China, and regional governments in the pilot regions attach greater importance to getting local firms to comply with the rules – which is notoriously difficult for environmental policies – than they do on ensuring that emissions go down.

As such, the smooth compliance process will be considered a win for the Guangdong government even though its ETS is over-allocated, especially in light of the issues it had last year.

Back then, a large number of manufacturers threatened to not comply with the scheme, protesting a rule that forced all firms to buy at least 3% of their permits through government auctions that were held with a minimum price of 60 yuan – far higher than price levels in the other Chinese regional pilot markets.

After delays and emergency negotiations, all but two firms eventually complied, but the affair made the provincial DRC rewrite the scheme rules to avoid a repeat.

Guangdong firms are still required to pay for a share (3-5%) of the allowances they are expected to need, but the minimum price at auctions has been lowered (starting at 25 yuan and rising to 40 over four auctions), and emitters were also given the opportunity to use the secondary market, where prices are much lower.

Meanwhile, Hubei and Tianjin have been forced to postpone compliance deadlines for their markets this year, albeit for different reasons.

By Stian Reklev – stian@carbon-pulse.com

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