The Guangdong government has launched a tender to find an expert who will be authorised to investigate the province’s cement production levels and market data with a view to overhaul the way the sector is given CO2 permits in the regional ETS.

In a tender launched on Monday, the Guangdong government seeks an expert to review the allocation methodology for the cement sector, including considering whether they should be given a smaller share for free than the current 97% of expected needs.

The review is intended to “promote the healthy and orderly development of the carbon trading system in Guangdong,” the tender note said.

Currently valued at around 22 yuan ($3.54), Guangdong permits are the cheapest in all of China’s seven pilot carbon markets, despite a recent price rally ahead of a government auction.

The main reason for the low prices is that the government handed out permits based on historical emission levels and overly optimistic economic growth estimates just as the nation entered an economic slowdown, leaving the market with a big permit surplus.

Market observers say a number of Guangdong manufacturers, especially in the cement industry, survived bankruptcy in 2013 by selling surplus CO2 permits they didn’t need because production levels had fallen.

Under current allocation rules, permits given to manufacturers for free can only be cancelled if production facilities are shut for more than six months in a year, meaning any factory that is merely mothballed for less than that timeframe gets to keep its emission permits.

For the 2014 compliance year, the government has said it plans to withdraw some pre-allocated permits ahead of the June compliance deadline based on the annual verified emissions data submitted in March, but no information is available on how much.

By Stian Reklev – stian@carbon-pulse.com