China carbon market_EN.pdf

1 Disclaimer This work is a product of Sino Carbon, under supervision from World Bank Group staff. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank Group, its Board of cutive Directors, or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other ination shown on any map in this work do not imply any judgment on the part of The World Bank Group concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Please direct any comments and questions about this work to the PMR Secretariat pmrsecretariatworldbank.org. February 2016/No.3 The PMR China Carbon Market Monitor provides timely ination across the seven Chinese pilot carbon markets. It also provides analysis of climate policy and market developments at the national level. Highlights As of December 31, 2015, the secondary carbon market for the seven ETS pilots has accumulated a total trading volume of 49.8 million tons, representing a trading value of US 232.3 million, and an average price of US4.66/ton. In the final quarter of 2015, Hubei remained the most active pilot market 43.77 of the total trading volume, followed by Shenzhen 29.25. The average price during this reporting period in the Shenzhen, Beijing, and Tianjin carbon markets has been slightly higher than that in last reporting period from April to August,2015, while the average price in Shanghai, Guangdong, Hubei, and Chongqing has been lower. As of December 31, 2015, 341 China Certified Emissions Reduction CCER projects have been registered by China’s National Development and Re Commission NDRC, among which 83 projects have issued a total of 25.04 million tons of emissions reduction credits. Seventy-six percent of these are pre-CDM projects. Moreover, a cumulative total of 32.47 million tons of CCERs have been traded on the pilot trading plats i.e., “exchanges”, three-fourths of which on the Shanghai exchange. In order to complete the preparatory work for the launch of China’s national carbon emissions trading market in 2017, NDRC issued a landmark notice to Development and Re Commissions DRCs on January 19, 2016 that clarifies the priority work and timeline that each must complete in 2016. More importantly, it provides technical guidance, including a “help desk,” that DRCs can use for ting historical emissions data and lists of covered entities. Contents Pilot Carbon Markets 2 Shenzhen 2 Shanghai .3 Beijing 4 Guangdong 4 Tianjin 5 Chongqing .5 Hubei .6 CCER Market . 7 Policy Updates and Analysis .8 Appendixes 9 China Carbon Market Monitor2 Pilot Carbon Markets At the close of 2015, 49.8 million tons of emissions allowances have been traded on the secondary market across the seven carbon markets since trading began in 2013. This accounts for a total value of US232.3 million and an average price of US4.66/ton. Online trading and over-the-counter OTC transactions made up 72 and 28 of the total volume, respectively, and 76 and 25 of the total trading value, respectively. Trading across these markets is the most active just prior to the close of the compliance period. Unsurprisingly, the start of a new compliance period is characterized by slower trading, as markets adjust. The 2015 compliance period ended in July, and trading in August was slow to materialize. Market liquidity recovered by September with the exception of Shanghai, but did not last, falling considerably through the end of December. Several conditions mean it is still challenging for many enterprises to accurately estimate annual emissions, reducing motivation to trade actively. The Chinese economy slowed in 2015, meaning emissions from last year may be a poor predictor for 2016. Furthermore, some enterprises still struggle with emissions data collection and with embracing a strategy for ensuring compliance. Weak market activity through the close of 2015 reflects delicate enterprise confidence with the carbon market. Trading volumes were highest on the Hubei market, where nearly 23 million tons were traded between September and end-December 2015, the vast majority OTC. This is nearly double the volumes traded in the first report of this Monitor published in May 2015. The Tianjin and Chongqing markets both traded fewer than 2 million tons each, a perance that remains consistent since the start of trading in 2013. Trading prices have been consolidating since September 2014 but continue a downward sloping trend since overall trading began in June 2013. Between September and December 2015, Beijing and Shenzhen reported the highest average prices at US6.44/ton and US6.07/ton, respectively, but also the most price volatility. At US1.07/ton, the Chongqing market had the lowest average price during the same period. Below is a summary of the activity in each of the seven pilots between September 1 and December 31, 2015. Except for the Guangdong market, the data reported are for the secondary market, including online trading and over-the-counter OTC transactions.For market perance in 2016, the China Carbon Market Monitor will begin to report on a quarterly basis. 1 In China’s pilot markets, all transactionsincluding OTCmust take place on trading plats i.e., exchanges. Figure 4. Shenzhen Carbon Markets Online Trading September 1-December 31, 2015 Figure 2. Cumulative Trading Value in the 7 Pilots Million US, September 1-December 31, 2015 Figure 3. Daily Average Price of Online Trading US/ton June 18, 2013 - December 31, 2015 Shenzhen 14,285,5923 Highlights Shenzhen pered well on volume 2,353,100 tons and value US14,285,592, ranking second and first among the seven pilots, respectively. Sale of Shenzhen Emissions Allowances for 2014 SZA14 accounted for 75.4 of the total volume, making it the most traded product among all markets. 2,259,847 tons of SZA13, SZA14, and SZA15 were traded online, with a total value of US13,808,976. Their online trading prices ranged from US4.10/ton to US7.25/ton,which was the highest recorded price among all markets during this period. OTC trading, which is far below that of online trading, totaled 93,253 tons at a value of US476,616. Shenzhen is the only pilot market to have allocated all 3 years of emissions allowances at once and to allow participants to reserve surplus allowances for future compliance and trading. This has helped the Shenzhen market retain liquidity. Table 1. Shenzhen Secondary Carbon Market Data September 1 – December 31, 2015 Table 2. Shanghai Secondary Carbon Market Data September 1 – December 31, 2015 Figure 5. Shanghai Carbon Market Online Trading September 1-December 31, 2015 Shanghai Highlights Trading of Shanghai Emissions Allowances SHEA both on-line and OTC reached a total of 669,232 tons in volume 8.51 of the total and US1,371,585 in value 4.35 of the total. After the compliance period, SHEA15 became the dominant trading product as the key compliance instrument for the 2016 compliance period. 59,232 tons of SHEA were traded online at a value of US123,298. The price of SHEA14 was stable, fluctuating about US1.80/ton, while the price of SHEA15 fluctuated more significantly from US1.54/ton to US3.47/ton. The average online trading price of SHEA was US2.08/ton, the second lowest price of all seven pilots to date. OTC trading volume was higher 610,000 tons traded at a value of US1,248,287. The average OTC trading price was US2.05/ton, slightly lower than the price for online trading. As trading on the Shanghai market is driven by compliance, the market was correspondingly inactive following the end of the compliance period in July 2015. 12,2214 Table 3. Beijing Secondary Carbon Market Data September 1-December 31, 2015 Beijing Highlights 100 of the trading of Beijing allowances BEA took place online, totaling 34,346 tons traded at a value of US221,041. About half took place in September. The daily average price declined from a peak of US7.17/ ton in mid-September to US5.18/ton by mid-November, before rising again to US6.25/ton by end-December. The average price for BEA remained the highest among all markets, more than 3 times that of Chongqing’s the lowest. Trading dropped off considerably starting in October. Individual investors, attracted by the high trading price, purchased allowances but not in significant enough volume to stimulate the entire market. Figure 7. Guangdong Carbon Market Online Trading September 1-December 31, 2015 Highlights Guangdong traded 1,395,806 tons of Guangdong Emissions Allowances GDEA at a value of US3,427,962, representing 17.75 of total volume and 10.88 of total value. 709,102 tons of GDEA were traded online, totaling US1,771,539. The online trading price between September and December was a little higher than during the compliance period, peaking at US3.03/ton on September 15. The volume and value of OTC trades were almost equal to online trading 686,704 tons traded at a value of US1,656,423 The volume and value of both online and OTC transactions were highest in September. Guangdong held auctions on September 21 and December 21 for 2015 allowances, with a total volume of 0.6 million tons and value of US1,430,000. The transaction price reduced from US2.48/ton to US2.31/ton, but was still higher than the online trading price on the same day. When its secondary market and auction transactions are considered, Guangdong had the highest trading volume 1,995,806 tons of GDEA and value USD3,496,962 among all markets. On September 17, the Guangdong DRC announced the Guangdong Allocation Scheme for 2015 Allowances. According to the scheme, auctioning is still applied, but for the first time the auction reserve price is set based on the recent market price instead of a fixed price. In addition, the allowance amount declared by enterprises must not be less than the total amount issued by the Guangdong DRC; otherwise the declarations will not be traded. The rules indicate that the auction price will be linked to the price in the secondary market See Appendix 1. In addition, the amount of allowances for auctioning has sharply decreased, from 8 million tons in 2014 to 2 million tons in 2015. Guangdong Figure 6. Beijing Carbon Market Online Trading September 1-December 31, 20155 Table 6. Tianjin Secondary Carbon Market Data September 1 – December 31, 2015 Figure 8. Tianjin Carbon Markets Online Trading September 1-December 31, 2015 Tianjin Highlights 14,200 tons of Tianjin Emissions Allowances 2015 TJEA15 were traded online at a total value of US50,656. Fewer than 500 tons traded daily. Prices for TJEA15 ranged from US3.45 to US3.72, averaging US3.57/ton. The scale of the Tianjin carbon market continuously declined, reporting the lowest volume of trades among the pilot carbon markets. This is reflective of general weak interest in the market by local enterprises as well as a lack of enforced penalties for enterprises that fail to surrender allowances. Table 4. Guangdong Secondary Carbon Market Data September 1-December 31, 2015 Table 5. Guangdong 2015 Allowance Vintage Auction Data September 21, 2015 and December 21, 2015 Chongqing Highlights The Chongqing Carbon Emissions Trading Center traded 9,217 tons of CQEA Chongqing Emissions Allowances at a value of US15,700, accounting for 0.10 of the total volume and 0.04 of the total value traded, constituting the smallest share of the seven markets. The average trading price was US1.70, hitting the lowest level of all seven pilots. Trading on the Chongqing carbon market only took place on 7 days during this period. The Chongqing pilot still allocated 2015 allowances based on emissions as reported by covered entities. The Chongqing pilot is, therefore, not using the widely- accepted benchmarking or grandfathering approach for allocation. 6 Table 7. Hubei Secondary Carbon Market Data September 1 – December 31, 2015 Figure 9. Hubei Carbon Markets Online Trading September 1-December 31, 2015 Hubei Highlights The Hubei market did not publish any ination about OTC trading between September and December; thus only online trading is reported here. Hubei traded 3,441,935 tons of emissions allowances at a total value of US12,415,049, which constituted the largest portion 43.77 of the trading volume among all markets. Although Hubei had the largest volume, the value was less than that of the Shenzhen pilot because of its lower price. The online trading price ranged from US3.09 to US3.98, decreasing slightly compared with that during the compliance period. Hubei announced the allocation arrangement for 2015 emissions allowances on November 25, 2015, but the announcement had little effect on the market. Between September and December, trading was spurred by a rule that requires enterprises to return untraded surplus allowances to the government after each compliance deadline. The allocation plan for 2015 is broader than that used in 2014. In addition to power, the industries required to benchmark perance now also include cement, heat, and combined heat See Appendix 1. The total number of enterprises covered expanded to 167 in 2015 from 138 in 2014. In addition, the Hubei DRC allocated both the 2015 and 2016 vintage allowances at once, meaning the pilot period in Hubei has been extended through 2016. This ensures there will be no gap between the conclusion of the Hubei pilot market and the launch of the national ETS in 2017.7 Wind Hydro Household biogas CMM power generation Waste heat power generation Biomass energy Nature gas power generation Solar PV Forest carbon sink Gas-fired cogeneration Hydro Wind Waste heat power generation Nature gas power generation CMM power generation Household biogas Biomass energy Solar PV Gas-fired cogeneration Forest carbon sink 40.96 25.30 3.61 3.61 3.61 3.61 2.41 1.20 1.20 14.46 35.86 6.03 4.41 0.35 0.26 0.02 7.21 11.79 Figure 10. CCER Projects by Type of issued projects Figure 11. CCER Projects by Type of credits issued Figure 12. Distribution of CCER Trading Among Exchanges tons CO2e 18.90 15.18 3 According to regulation on the management and operation of CCER projects issued by the NDRC, there are four categories of CCER projects. Category 1 refers to newly developed CCER projects. Category 2 refers to those projects which get a Letter of Approval from the Designated National Authority but are not yet registered at the CDM cutive Board. Category 3 refers to those registered CDM projects applying for issuance of emissions reductions generated before the date of registration, known as Pre-CDM projects. Category 4 refers to those registered CDM projects for which the CDM cutive Board never is