Guangdong reforms CO2 allowance auction pricing mechanism

Published 06:43 on September 8, 2015  /  Last updated at 06:43 on September 8, 2015  /  China, China's Pilot Markets  /  No Comments

Guangdong will move away from fixed price floors in its CO2 permit auctions and instead use a benchmark price based on a three-month weighted average price, the China Emissions Exchange in Guangzhou said Tuesday.

Guangdong will move away from fixed price floors in its CO2 permit auctions and instead use a benchmark price based on a three-month weighted average price, the China Emissions Exchange in Guangzhou said Tuesday.

The biggest of China’s seven pilot carbon markets is the only one to hold regular sales of allowances to scheme participants, but has struggled to find a well-functioning pricing mechanism.

For 2015 it will sell 2 million allowances over four auctions, and ahead of each auction the market regulator will publish a benchmark price of 80% of weighted average prices over the previous three months, the exchange said.

The unweighted average for the past three months in the secondary market is 16.32 yuan ($2.56).

The first auction will be held later this month, but the exact date has not yet been set.

The Guangdong DRC is hoping that lower volume on offer and the new pricing policy will boost interest in the auctions, despite the market being over-allocated.

For 2014, Guangdong aimed to sell 8 million allowances, but in the final auction only 10% of the offered volume was picked up.

The DRC had set a fixed price floor for the auctions in advance, beginning at 25 yuan and rising to 40 yuan, but as prices in the secondary market fell below 20 yuan, interest waned.

In 2013, participation in the auctions was mandatory, but at a price floor of 60 yuan – far above market prices in the other pilot schemes – the policy sparked anger among local emitters and caused a number of manufacturers to threaten non-compliance with the scheme.

The 2015 auctions will be open to all emitters covered by the Guangdong ETS, as well as financial institutions that have been licensed to trade in the market.

By Stian Reklev – stian@carbon-pulse.com

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