China Carbon Market Weekly Update – 22 April 2024
MVGX Group（新加坡数字绿色交易所集团）
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Week at a Glance (April 15, 2024 – April 19, 2024)
Carbon Market Update (April 15, 2024 – April 19, 2024)
Activity in China's national Carbon Emissions Allowance (CEA) market dropped significantly from the previous week’s 2024 high of 2.4 million tonnes, ending the current week with a total volume of only 799 thousand tonnes, just above the 2024 weekly volume average. Block trades accounted for a little over half of the volume.
Among the weekly total volume, 61.4 thousand tonnes came from the 2019-2020 vintage, 111.1 thousand tonnes came from the 2021 vintage, and 626.7 thousand tonnes came from the 2022 vintage.
According to an article published by Bloomberg on April 15, the Ministry of Ecology and Environment, which regulates the CEA market, had asked for comments from businesses on a draft plan that would reduce the amount of allowance allocated to covered entities for 2023, a compliance year in the upcoming compliance cycle. The plan would also retire after 2025 surplus allowances from previous compliance cycles. Estimates of the surplus by multiple sources have put the total number around 360 million tonnes from across the four allocation years of 2019 through 2022. These two proposed measures, if passed, would theoretically counterbalance each other with the former reducing supply and the latter forcing the sale of surplus allowances currently hoarded by covered entities.
Traders, however, seem to have decided that the overall effect of the draft plan would be a supply shortage as they pushed CEA prices to fresh all-time highs during the week, continuing a strong upswing that has seen price indicators hit all-time highs nearly every week since the end of the Lunar New Year holidays in mid-February. Open market transactions finished the week at an all-time high of 94.87 yuan (US$13.35) per tonne,[1],[2] a 3.3% increase from the previous week. The volume-weighted weekly average price of open market transactions also hit an all-time high at 93.66 yuan per tonne, a 5.2% increase from the previous week. Block trades averaged 92.44 yuan per tonne for the week, breaking the 90-yuan mark for the first time. The volume-weighted average price of all of the week’s trades increased to 92.99 yuan (US$13.09) per tonne, also breaking the 90-yuan mark for the first time.
All price indicators for all three vintages reached their all-time highs during the week. The 2021 vintage registered an all-time and all-vintage weekly closing high of 95.50 yuan per tonne for open trades, while the 2022 vintage had an all-time and all-vintage weekly average high of 92.44 yuan per tonne for block trades.
Activity across the nine regional China Certified Emission Reductions (CCER) increased, ending the week with a combined volume of 566 thousand tonnes. Shanghai accounted for nearly 94 percent of this volume. Available prices remained substantially lower than their CEA counterparts.
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[1] Starting with the 26 February 2024 issue, this newsletter calculates our own daily overall market closing price using the volume-weighted average of traded CEA vintages. This replaces the closing price reported by the Shanghai Environment and Energy Exchange (SEEE), which is an equal-weighted average of the closing prices of all three CEA vintages. The closing price reported by the SEEE does not reflect market reality due to the frequent and vast volume differences among the vintages on any given day.
[2] 1 US$ = 7.1046 RMB, middle price, April 19, 2024, China State Administration of Foreign Exchange. The same exchange rate is used for all other values quoted in US dollars ($) in the newsletter.
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