BP strikes deal for China's biggest carbon permit buyback contract

[BEIJING] Energy giant BP has struck a deal with a local power company in China for the largest carbon permit buyback contract in the short history of the country's nascent carbon market.

Under the contract, worth 100 million yuan (S$21 million), Shenzhen Energy, must by June repurchase 4 million permits that it sold to the British oil conglomerate on Saturday, according to the China Emission Exchange in Shenzhen, one of the country's seven pilot carbon bourses.

The deal gives BP the opportunity to trade the permits it has bought in secondary markets, while giving Shenzhen Energy access to liquidity.

"It is not surprising for BP, which has many facilities in China, to set foot here early. And ... (it) helps the permit owner to raise capital," said Lin Yin, a spokeswoman at the exchange.

The bourse said BP had settled the purchase in renminbi through its offshore account. BP declined to comment immediately.

The Shenzhen exchange is currently the only pilot scheme that allows unlimited trade in all currencies, while the other pilots have tightened approval of foreign account registration after Beijing launched renminbi exchange reforms last August.

Foreign trading firms such as Royal Dutch Shell, Ginga Petroleum and Virtuse Group have entered the Shenzhen exchange, as well as those in Guangdong and Shanghai, which are relatively open to international players.

BP is also seeking another deal for 400,000 carbon offset credits known as Chinese Certificate Emissions Reduction (CCERs), several people familiar with the matter told Reuters.

China allows emitting companies in the carbon pilots to use a limited number of cheaper offset credits, awarded by the central government to carbon dioxide reduction projects to help offset 5 to 10 per cent the emitter's obligatory target.

Shenzhen permits were trading at 45 yuan (US$6.96) on Friday, according to the Shenzhen exchange. The asking price for offset credits sold over the counter was 8 to 20 yuan, several traders said.

China has said it will integrate the regional trading schemes into the national market sometime in 2017.

Jiang Zhaoli, a senior official with China's central planning commission said on Saturday he expected the national market to open in July 2017 - earlier than expected - and to cover 4 billion tonnes of CO2 emissions, according to sources presented the same conference in Shenzhen.

REUTERS