Carbon market update (July-August 2022)
Trading in China’s national carbon emissions allowance (CEA) market ended July with a monthly total volume of 1,091,990 tons, and August with 547,987 tons. The combined two-month volume was the lowest of any two-month period since the launch of the CEA market in July 2021. The August total volume also set a new all-time single-month low. The August volume by block trades was similarly at an all-time single-month low of 351,335 tons.
Factors holding back the market since February have not abated, namely, a lack of policy direction on the further development of the market and a slowing economy. As a result, it is not surprising that market participants, i.e., power generators covered by the allowance trading scheme, have had little incentive to trade before the next compliance period begins in likely over a year’s time.
Market prices, on the other hand, continued to hold up well amid record low volumes, with open market transactions closing July at 58.00 yuan ($8.34) per ton, up 0.9% from June. Open market transactions closed in August at exactly where they started, 58.00 yuan per ton. The July monthly volume-weighted average price for all trades was at 58.82 ($8.46) yuan per ton, increasing by 1.7% from June while setting an all-time monthly high. The August volume-weighted average price, on the other hand, dropped by 4.6% from July to 56.10 ($8.07) yuan per ton due to an unexpectedly low price for some block trades in a month where the market had a record low volume.
- In a notification posted to provincial governments and State Council agencies on July 14, China’s State Council, the government’s cabinet, listed as a priority the enactment of the Interim Regulation for the Management of Carbon Emissions Trading (the “Interim Regulation”) for 2022 in its annual legislative plan. The Interim Regulation was also on the 2021 priority list but did not materialize then. If enacted, the Interim Regulation will provide the CEA market with a stronger legal foundation for future development, including greater penalties for non-compliance.
- In a notification to provincial-level environmental agencies released on August 19, the National Development and Reform Commission (the “NDRC”), the National Bureau of Statistics, and the Ministry of Ecology and Environment (the “MEE”) jointly issued the Implementation Plan for Accelerating the Establishment of a Unified and Standardized Carbon Emissions Accounting and Verification Framework (the “Implementation Plan”). The Implementation Plan aims to establish a standardized carbon emissions quantification and verification system that can be applied from the enterprise level all the way to the national greenhouse gases inventory. Such a system will have a far-reaching impact on China’s efforts to achieve its carbon neutrality goals through its CEA market, as well as voluntary carbon reduction actions by enterprises.