China launches trading in biggest carbon market

Critics say it could be years before the market has any meaningful effect

TRADING has begun in China's national carbon market, a system that's now the world's biggest emissions exchange hub in the top polluting nation.

Carbon allowances opened on Friday at 48 yuan (S$10) a tonne and quickly hit a 10 per cent trading limit, according to people familiar with the details. A first transaction of 7.9 million yuan was made at a price of 52.78 yuan a tonne, CCTV reported.

The price is a fraction of the rate in the European Union, where carbon touched a record of 58.64 euros (S$94) a tonne on July 1, and reflects the limited initial scope of China's system.

China's market so far covers only about 2,200 companies in the power sector and has been criticised over generous pollution allowances.

It's also seen as unlikely to help the top polluter make any immediate progress in meeting its climate targets.

The Shanghai Environment and Energy Exchange, which hosts the market, said it could not immediately confirm details on prices and trading.

Europe's market has seen carbon prices rise "to levels that will likely kill off coal for power generation and also challenge the economic viability of natural gas", Henning Gloystein, an analyst at Eurasia Group, said in an e-mail. "China's carbon market will likely kick off at modest prices that won't immediately induce a drastic shift, but which will allow Chinese companies to get used to the market."

Authorities aim to quickly extend the system to other industries, Vice-Minister of Ecology and Environment Zhao Yingmin told reporters on Wednesday. That's likely to include cement and steel producers, which are among key polluters.

The trading debut comes after repeated delays and smaller pilots in a number of provinces, where carbon traded at around 40 yuan a tonne.

Launch ceremonies for the national market were being held on Friday in Shanghai and Hubei province, with attendees including government officials, power producers and bankers.

President Xi Jinping wants China to peak its carbon emissions by 2030 and reach carbon neutrality by 2060. The trading system is intended to force companies to pay for at least some permits to release carbon dioxide, encouraging them to use fuel more efficiently and reduce pollution.

The market should initially instigate better data monitoring and encourage key polluters to change behaviour, Refinitiv analyst Yan Qin said in an e-mail. "The carbon market is a core instrument in helping China to achieve its climate pledge," she said. "The level of carbon price is unlikely to be very high at the start."

Critics contend that it could be years before the carbon market has any meaningful effect. A potential surplus of permits could mean that even polluters who emit too much will be able to easily buy allowances at a cheap price. BLOOMBERG

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