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China's Shanghai allows use of surplus permits in extended carbon scheme

[BEIJING] The Shanghai carbon market, one of China's pilot emissions trading schemes, will allow participants to use surplus permits from the last three years of trading to comply with emissions targets over 2016-2018, the local government said on Monday.

China is preparing to launch a nationwide carbon trading scheme next year, but regulators have not said whether permits on the seven pilot exchanges would remain valid afterwards, and the ruling by Shanghai could bring some clarity to the market.

The policy statement issued by the Shanghai municipal government on Monday also suggested local markets would continue to operate until at least 2018, allaying market concerns that they would be superseded by the nationwide scheme.

"It is good to have the legal backing to bind currently participating companies (to meet local emissions targets) regardless of progress in national market building," said an official with the local bourse, the Shanghai Environment and Energy Exchange.

Shanghai will allow more than 300 local emitters covered by the city's carbon scheme to convert surplus permits into "Shanghai Emission Allowances" (SHEA) once the first phase of trading, covering 2013-2015, ends on June 30, 2016, the city government's statement said.

Emitters will be allowed to carry over one third of their surplus per year during the 2016-2018 period, the statement said, while financial institutions can convert any permits they have bought through in-exchange trading in one go.

The Shanghai municipal government handed out three years of permits free of charge to participating companies in 2013, with the total estimated at 160 million per year.

China's top regulator has supported the idea of reducing the nationwide permit surplus by cutting the number of local permits allowed on the national market, but the trade on all seven regional markets has plummeted this year, with investors awaiting more detailed transition plans.

Shanghai announced earlier this year that it would add another hundred emitters to its market, a move seen as countering the expectation that 30-40 of the biggest participants will jump straight into the national exchange with it is launched.

"Companies not liable to trade on the national market will still commit to local obligations after the national market starts operating in 2017," the exchange official said.

Shanghai permits, valid only on the local exchange, have dropped to a record low of around 5 yuan (S$1.05) since April.

The national carbon market is expected to cover companies in eight industries that emit more than 260,000 tonnes of carbon dioxide a year.


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