China tweaks carbon-trading rules to cool rising permit prices
New regulations will exert only a slight downward pressure on prices, which climbed due to a looming year-end compliance deadline that raised the prospect of a supply shortfall
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CHINA has announced new rules for its carbon market that will increase the number of free allowances that power plants can obtain, potentially cooling a rally that has sent permit prices to record levels.
Additional emission permits worth about eight million tonnes will be created, indicated a review of a carbon-trading plan by the London Stock Exchange Group (LSEG), and published by China’s Ministry of Ecology and Environment on Monday (Oct 21).
The additional allowances could dampen a rally that on Monday pushed the price of Chinese carbon allowances to a record 104.14 yuan (S$19.22) a tonne. The rise in price was driven by a looming year-end compliance deadline that raised the prospect of a supply shortfall.
But even with that rally, carbon prices in the world’s biggest polluter are just a fraction of Europe’s. The new plan will do little to narrow that gap.
LSEG analyst Song Yutong said that it will place a slight downward pressure on carbon prices.
China’s carbon market has struggled with muted trading and limited scope. It was launched in 2021 to encourage polluting industries to cut emissions, and currently covers about 2,200 power utilities with expansion plans that will cover the steel, cement and aluminium sectors next year.
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Lenient allocations for polluting power plants have left the market with a surplus of more than 300 million tonnes so far, said LSEG. BLOOMBERG
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