China Carbon Monthly Market Update – November 2022

Monthly carbon market update (November 2022)

Trading in China’s national carbon emissions allowance (CEA) market jumped in November on the back of the release of the Implementation Plan for the Determination of the 2021 and 2022 China Emission Allowances Caps and their Allocation (the Power Generation Sector), Draft for Public Comment (the Draft Plan) by the Ministry of Ecology and Environment on November 3. Now with a clearer view of their CEA demand or surplus, market participants, i.e., the covered entities from the power generation sector, were actively engaged with the market. Total monthly volume surged, reaching nearly 7.3 million tons, the second highest for 2022 after January. Both open market transactions and block trades increased by over seven-fold, registering the 4th and 5th highest volume over their respective historic records.

The Draft Plan sets December 31, 2023, as the deadline for the second compliance cycle of the CEA market, covering both 2021 and 2022. It introduces the concept of ‘surplus-deficit balance value” or the Balance Value. The Balance Value is the base emission factor for a particular class of generators at which the actual total emission is equal to the total allowance allocation. According to the Balance Value and the base emission factor in the Draft Plan, for general coal-fired power generators with a capacity greater than 300MW, the target emissions reduction is 0.12% for 2021 and 0.62% for 2022. For non-general coal-fired generators, which usually have lower capacity, these numbers are 2.9% and 3.3%, respectively. The Draft Plan, however, leaves undetermined the fate of the CEA surpluses retained by covered entities from the previous compliance cycle (2019-2020). 

Market prices remained steady despite surging volumes. Open market transactions closed November at 57.52 yuan ($8.01 [1]) per ton, slightly lower than in October. The volume-weighted average block trade price was 53.94 ($7.51) yuan per ton—2.5% higher than October—while the volume-weighted average price for all trades increased by 1.5% from October to 55.31 ($7.71) yuan per ton. Open market transaction prices have been stable since the start of 2022 amid huge swings in daily, weekly, and monthly volumes. They moved around the year-to-date weekly volume-weighted average price of 57.79 yuan ($8.05) per ton with a standard deviation of only 0.90 yuan/ton, suggesting that a price slightly lower than 58 yuan per ton has generally been regarded by market participants as the current benchmark CEA price.

[1] 1 US$ = 7.1769 RMB, middle price, November 30, 2022, China State Administration of Foreign Exchange. Same for all other values quoted in US dollars ($) in the newsletter.

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