China Carbon Market Weekly Update – 13 November 2023

Week at a glance (November 06, 2023 – November 10, 2023)

• Activity in China's national Carbon Emissions Allowance (CEA) market continued to decrease from the post-National-Holiday high, ending the current week with 14.7 million tons of total volume, a 5.5% decline from the previous week. Block trades accounted for all of this decrease while open market transactions increased to a 23-month high. Open market transaction prices closed the week at 71.14 yuan ($9.91) per ton, marking the third consecutive week of lower closing prices and a 9-week low. The volume-weighted average price for all of the week’s trades was 73.21 yuan ($10.20) per ton, increasing to the second highest ever. Volume and price actions over the recent weeks suggest that for open market transactions, supply has kept up with demand, while for block trades supply has decreased and prices have increased to converge with those of open market transactions.?
• The three allowance vintages went separate ways in their activities, with the most actively traded and newest 2022 vintage slowing to account for the entire market’s volume decrease from the previous week. The price convergence of both types of trades for all three vintages suggests that market participants, i.e., entities covered by the China ETS, have recognized that for the current compliance cycle, all vintages have identical compliance eligibility.
• Activity across the nine regional China Certified Emission Reductions (CCER) markets increased to 701,517 tons, returning to near the two-year high set two weeks before following a slew of CCER trading rules and policies unveiled by the environment ministry. Shanghai led the markets, accounting for nearly 70% of their total volume. CCERs traded in the Beijing and Sichuan markets were near price parity with allowances of the CEA market.
• On November 7, the Ministry of Ecology and Environment, together with 10 other central government agencies, issued the Methane Emission Control Action Plan to provincial-level governments. The Action Plan specifically cites the CCER market as an incentive mechanism to finance methane emission control projects, which points to a likely inclusion in the near future of one or more methane-related methodologies in the revamped CCER market.

Carbon markets update (November 06, 2023 – November 10, 2023)

Activity in China's national Carbon Emissions Allowance (CEA) market continued to decrease from the post-National-Holiday high, ending the current week with 14.7 million tons of total volume, a 5.5% decline from the previous week. Block trades accounted for all this decrease while open market transactions increased to a 23-month high. As the December 31 deadline for allowance submissions looms closer for the current compliance cycle, trading by smaller covered entities, which rely more on open market transactions to purchase needed allowances, may push the volume higher still. Among the 14.7 million tons of weekly total volume, 3.0 million came from the 2019-2020 vintage, 2.8 million from the 2021 vintage, and 8.9 million from the 2022 vintage.

Open market transaction prices closed the week at 71.14 yuan ($9.91[1]) per ton, marking the third consecutive week of lower closing prices after an all-time high of over 81 yuan per ton, and a 9-week low. The weekly volume-weighted average price of open market transactions ended the week at 73.04 yuan ($10.18) per ton, an 8-week low. The volume-weighted average block trade price, at 73.26 yuan ($10.21) per ton, was the second highest ever. It increased 3.1% from the previous week after retreating from an all-time high set the week before. In only three weeks, block trades went from having the largest-ever weekly average price discount of 16.81 yuan ($2.34) per ton from their open market transaction counterpart to a small premium of 0.21 yuan per ton. The volume-weighted average price for all of the week’s trades was 73.21 yuan ($10.20) per ton, increasing nearly 2% from the previous week to the second highest ever. Volume and price actions over the recent weeks suggest that for open market transactions, supply has kept up with demand, while for block trades supply has decreased and prices have increased to converge with those of open market transactions.?

The three allowance vintages went separate ways in their activities, with the most actively traded and newest 2022 vintage slowing to account for the entire market’s volume decrease from the previous week. The other two vintages both increased their volumes substantially albeit from low bases. All three allowance vintages also closed the week at lower prices for the third consecutive week for open market transactions. Both closing and average prices for the three vintages’ open market transactions remained close. Prices for the block trades, although maintaining a price separation, further narrowed the differences among the three vintages with the newest 2022 vintage nearly reaching parity with the 2021 vintage and the generally highest-priced 2019-2020 vintage marginally remaining higher. The price convergence of both types of trades for all three vintages suggests that market participants, i.e., entities covered by the China ETS have recognized that for the current compliance cycle, all vintages have an identical compliance eligibility, as indicated in the current rules for compliance submission. The volume actions of the vintages, on the other hand, imply that the 2022 vintage is likely the best supplied among the three vintages, whereas the 2019-2020 vintage is the least available.

Activity across the nine regional China Certified Emission Reductions (CCER) markets increased to 701,517 tons, returning to near the two-year high set two weeks before following a slew of CCER trading rules and policies unveiled by the environment ministry. Shanghai led the markets, accounting for nearly 70% of their total volume. Sichuan, Tianjin, and Beijing all saw meaningful volumes.

On November 7, the Ministry of Ecology and Environment (the “MEE”), together with 10 other central government agencies, issued the Methane Emission Control Action Plan (the “Action Plan”) to provincial-level governments. The Action Plan outlines 8 main tasks ranging from instituting an MRV system to making progress in controlling emissions from various sources such as the energy sector and the waste treatment processes, and to establishing related standards and policies.? The Action Plan specifically cites the CCER market as an incentive mechanism to finance methane emission control projects. After issuing four CCER-eligible emission reduction quantification methodologies, the MEE will likely follow up with one or several methane-related methodologies in the near future.

Meaningful CCER price information was available from the Sichuan, Shanghai, and Beijing markets. All listed markets traded at a discount from the CEA average price. Beijing and Sichuan were near parity with the CEA market. Shanghai’s prices were derived from published cumulative trade values across several spot products. This price information often appears inconsistent and erratic.

[1] ?1 US$ = 7.1771 RMB, middle price, November 10, 2023, China State Administration of Foreign Exchange. The same exchange rate is used for all other values quoted in US dollars ($) in the newsletter.