China’s national emissions trading scheme (ETS), the world’s largest carbon market covering a seventh of emissions globally, hit 10 billion yuan (US$1.4 billion) in total transactions on Thursday.
The Shanghai Environmental and Energy Exchange (SEEE), which oversees the ETS, said on Thursday that its trading volume had reached 10.12 billion yuan since the scheme’s launch on July 16 last year.
Its carbon price and trading volume, however, both fell below expectations.
According to SEEE, a total of 223 million tonnes of carbon allowances were changed hands during the past 350 trading days. The ETS’s carbon price, however, closed at 56.5 yuan per tonne on Thursday, far below the 65 yuan per tonne forecast by data provider Refinitiv earlier this year.
On the first trading day last July, the carbon price stood at 51.23 yuan per tonne on and 54.22 yuan per tonne at the end of 2021.
Additionally, of the total only 44 million tonnes of carbon allowances changed hands this year, much lower than the 179 million tonnes traded during the 114 trading days of 2021.
The lower-than-expected trading performance this year can be attributed partly to the limited coverage of industries and the ETS’s generous allowances, said Lucas Zhang Liutong, director of Hong Kong-based consultancy WaterRock Energy Economics
The low carbon prices were also expected and were likely to remain low in the coming few years, as the government continues to provide relatively generous carbon emissions benchmark targets for coal and gas plants, Zhang added.
The scheme currently covers 2,162 companies from the country’s power generation sector, which altogether emits around 4.5 billion tonnes of carbon dioxide annually.
The ETS was initially expected to expand to cover the cement and aluminum sectors this year, and to regulate all eight of China’s big carbon-emitting sectors – power generation, oil refining, chemicals, steel, building materials, non-ferrous metals, paper and aviation – by 2025. But Chinese media reported earlier this year that the scheme might delay its expansion to cement and aluminum until 2023, due to data quality issues.
Trading activity under the ETS is expected to remain slow next year, as Beijing is currently prioritising economic growth and power security, said Lin Boqiang, director of the China Centre for Energy Economics Research at Xiamen University.
“But eventually, the huge demand for carbon dioxide mitigation under the carbon neutral goal will definitely drive up transaction volumes and carbon prices,” Lin said.
“After the carbon trading requirements are expanded to non-power sectors in the next few years, there should be more carbon trading between renewable firms and large end users in the non-power sector,” said WaterRock’s Zhang.