China Carbon Market Weekly Update – 5 February 2024

Week at a glance (January 29, 2024 – February 2, 2024)

• Activity in China's national Carbon Emissions Allowance (CEA) market rebounded strongly from the post-compliance slump, ending the current week with 1.8 million tons of weekly total volume. Among this volume, 0.16 million tons came from the 2019-2020 vintage, none from the 2021 vintage, and 1.66 million from the 2022 vintage.
• On February 4, the State Council officially released the much-awaited Interim Regulation for the Management of Carbon Emissions Trading, finally elevating the regulation governing the CEA market to a legal status equivalent to national law, thus enabling the national and provincial environmental agencies to penalize a much higher degree non-compliant and fraudulent actions by covered emission entities, data testing and verification service providers, and other market participants.
• CEA open market transaction prices closed the week at 74.53 yuan ($10.50) per ton, 2.3% higher than the previous week. Block trades jumped over 16% to a weekly volume-weighted average price of 72.30 yuan per ton. The volume-weighted average price of all of the week’s trades rose to 72.42 yuan ($10.20) per ton, an 8.4% increase from the previous week.
• Activity across the nine regional China Certified Emission Reductions (CCER) markets continued its wide fluctuations seen in recent weeks, dropping more than 50% to 86 thousand tons of weekly total volume.? Shanghai again accounted for nearly all the combined volume.

Carbon markets update (January 29, 2024 – February 2, 2024)

Activity in China's national Carbon Emissions Allowance (CEA) market rebounded strongly from the post-compliance slump, ending the current week with 1.8 million tons of weekly total volume. Although still much lower than those during the active compliance months of mid-August to December 2023, this volume was well above the average of 0.78 million tons for the non-compliance period of January 2022 to mid-August 2023. Among the weekly total volume, 0.16 million tons came from the 2019-2020 vintage, none from the 2021 vintage, and 1.66 million from the 2022 vintage.

On February 4, the State Council officially released the much-awaited Interim Regulation for the Management of Carbon Emissions Trading, finally elevating the regulation governing the CEA market to a legal status equivalent to a law passed by the National People’s Congress. The Interim Regulation will take effect on May 1, 2024. Compared to the current market governing regulation—the Administrative Measures for Carbon Emission Trading (Trial), the Interim Regulation will enable the national and provincial environmental agencies to penalize to a much higher degree non-compliant and fraudulent actions by covered emission entities, data testing and verification service providers, and other market participants. These penalties include, among others, fines up to 2 million yuan ($280 thousand), forced closure of business, and criminal prosecution.

Open market transaction prices closed the week at 74.53 yuan ($10.50[1]) per ton, 2.3% higher than the previous week. The weekly volume-weighted average price of open market transactions decreased marginally to 73.41 yuan per ton. Block trades jumped over 16% to a weekly volume-weighted average price of 72.30 yuan per ton, rapidly closing its gap with the average price of open market transactions to a 3-month low from a 3-month high set in the previous week. The volume-weighted average price of all of the week’s trades rose to 72.42 yuan ($10.20) per ton, an 8.4% increase from the previous week. The 2022 vintage closed the week at the highest open transaction price among the three existing vintages, while the 2019-20 vintage had the highest overall weekly average price.

Activity across the nine regional China Certified Emission Reductions (CCER) markets continued its wide fluctuations seen in recent weeks, dropping more than 50% to 86 thousand tons of weekly total volume. ?Shanghai again accounted for nearly all the combined volume. Sichuan is the only other market that saw any activity for the week. The new national CCER market, housed in and operated by the China Beijing Green Exchange, did not report any activity for the week.

This week’s meaningful CCER price information was available from the Shanghai and Sichuan markets. Shanghai traded slightly below the CEA overall average price while Sichuan traded at a 27% price discount to their national CEA counterparts.

[1] ?1 US$ = 7.1006 RMB, middle price, February 2, 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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