The price of emissions allowances on the national exchange rose to as much as 70 yuan ($9.68) a ton on Friday, before settling 0.55% higher at 69.9 yuan. That takes the weekly gain to 6%. Volumes, which have been moribund for long periods since the market launched two years ago, have also picked up. Nearly 225,000 tons traded this week, 19% higher than a week ago.
Prices have marched steadily higher since hitting a low of 50.52 yuan a ton in April, although the cost of carbon in China is just a fraction of the price on a similar market in the EU.
Beijing has been careful to ease firms into accepting pollution costs and is tightening the supply of permits only gradually. Power plants get free allowances for a certain amount of emissions in a year, but if they exceed that, they have to purchase them from the open market to make up the difference. Under the Chinese system, generators need to accumulate enough allowances by the end of 2023 to cover their 2021 and 2022 emissions.
Annual Target
This year, Beijing has told local authorities to ensure 95% of the annual target is met by Nov. 15 to avoid unwelcome volatility if firms take a last-minute approach to getting cover for their emissions. Companies with surplus allowances are being asked to sell to those that are short, according to people familiar with the matter, who declined to be identified as the information isn’t public.
That’s lifted market activity, particularly among firms that were forced to burn more dirty coal over the past two years to battle power crunches or mitigate the impact of drought on hydropower supplies, the people said.
The environment ministry, which overseas the carbon market, didn’t respond to calls seeking comment.
China Huadian Corp., one of the biggest state-owned power firms, said it’s already secured sufficient permits, the first of some 2,200 companies that participate in the market to do so, according to a statement on Thursday.
A handful of provinces and regions, including Shanghai, which hosts the national exchange, have already handed out their allocation of free permits to local firms, according to the people familiar with the matter. That’s given generators better visibility on the number of allowances they need to buy to cover their emissions.
