Shenergy Financial Corp., owned by Shanghai’s biggest power company and BNP Paribas Fortis, is stepping into the Shanghai carbon market by taking advantage of new market rules that allow it to borrow CO2 allowances from other companies for trading purposes.

The company has borrowed an unknown amount of allowances from four big power plants, including Waigaoqiao Power Generation, Wujing Thermal Power Plant and Shanghai Lingang Gas Turbine Power Generation Co., the Shanghai Energy and Environment Exchange said.

Both Shenergy Financial and the power plants are majority-owned by Shenergy Group, a state-owned company.

According to the exchange, the deal is the first time a company takes advantage of a June 23 rule change that allowed borrowing allowances.

Under the rules, Shenergy must pay a 30% margin to the exchange as a risk deposit, and would also have to agree on a profit split with the lenders.

It can only use the permits for trading, not for compliance or as collateral against commercial loans.

The exchange said it hoped the deal would boost liquidity and help develop the Shanghai ETS further.

The Shanghai ETS is one of several Chinese pilot carbon markets struggling with liquidity. Since it launched in November 2013, some 4.2 million allowances have traded on the local exchange, worth a total of 127 million yuan ($20.5 mln).

On July 31, Shanghai allowances fell to a record low of 9.50 yuan, but has since crawled back up to 11.60.

By Stian Reklev – stian@carbon-pulse.com

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