China’s carbon market review 2022 and outlook 2023
Click:0    DateTime:Mar.08,2023

By Wang Ke, Li Shilong and Li Siyang, Center for Energy & Environmental Policy Research, Beijing Institute of Technology

China’s national carbon emissions trading market

Power generation industry has been first brought into China’s national carbon emissions trading market, the world's largest by volume of emissions, i.e. currently 45% of domestic carbon emissions and more than 70% if cement and steel industries will join the national market in coming years. By December 31, 2022, cumulative trading volume of the national carbon emissions trading market had reached 229 million tons, valued at RMB10.47 billion, and for the year of 2022 alone, 50.86 million tons of carbon emissions quotas were traded – more specifically, 87.84% by means of block trading and 12.16% listed transaction. Annual turnover for 2022 amounted to RMB2.81 billion, with average transaction price (listed transaction) growing 24.64% from 2021’s RMB46.6/t to RMB58.08/t.

The national carbon emissions trading market showed some characteristics in 2022: 1) key participants concentrated in northeast comprehensive economic zone, middle Yellow River comprehensive economic zone and eastern coastal comprehensive economic zone; 2) market activity level could be greatly improved, given turnover rates of 2%-3%, lower than the average of 5% of China’s seven pilot carbon markets and far below 500% of EU carbon market; 3) trading volume was higher in January, November and December 2022, and generally less than 500 000 tons during February-October, which pushed transaction concentration to 91.93% in 2022, up 11.13 percentage points YoY; 4) average daily transaction prices remained relatively stable, fluctuating around RMB58/t and narrowing down the difference between the highest and the lowest to RMB13.36/t, lower than the difference in all pilot carbon markets; 5) the national market became more standardized benefiting from the government’s efforts – e.g. requiring enterprises that failed to offset excess emissions on time to submit related quotas within a new deadline, cracking down on fake carbon emissions data, etc.

In 2022, the government required enterprises engaged in non-electric power industry to submit greenhouse gas emissions report 2021, and would make or revise carbon emissions accounting methods and related national standards (both regarding key industries such as power, steel, building materials, chemicals, etc.), as detailed in relevant documents issued to help more industries participate in the national carbon emissions trading market.

China’s seven pilot carbon emissions trading markets

Seven pilot carbon emissions trading markets – in Beijing, Tianjin, Shanghai, Chongqing, Guangdong, Hubei and Shenzhen, respectively – laid a solid foundation for the national one. By December 31, 2022, cumulative online trading volume of the seven pilot markets reached 398 million tons, valued at RMB10.64 billion. For the year of 2022 alone, the trading volume totaled 34.73 million tons, and annual turnover reached RMB2.02 billion. Guangdong market ranked first by trading volume and turnover, followed by Hubei market, and Chongqing market was at the very bottom of the rankings. In spite of slightly higher than Chongqing market in trading volume, Beijing market – benefiting from the highest average transaction price among the seven markets – achieved turnover far exceeding Chongqing market’s. Average transaction price of Tianjin market was the lowest.

Beijing, Tianjin, Shenzhen and Chongqing markets have accounted for increasingly higher trading volume proportions since 2020. In 2022, trading volume proportions of five markets – i.e. Beijing, Tianjin, Shenzhen, Hubei and Shanghai markets – saw year-on-year growth, versus a decline of Guandong market. Since 2019, online trading volume of Guangdong, Tianjin, Shenzhen and Chongqing markets has shown upward trend, while that of Beijing, Shanghai and Hubei markets downward trend. In 2022, Beijing, Guangdong, Shenzhen and Chongqing markets obtained year-on-year decline in trading volume, especially Guangdong market seeing a drop of 45.56% YoY; trading volume of Tianjin, Shanghai and Hubei markets grew compared with 2021, with Hubei market seeing the highest growth of 48.81% YoY. Since 2020, trading activities have become more concentrated in Guangdong, Beijing, Tianjin, Shanghai and Shenzhen markets. In 2022, except Hubei market, the other six all raised concentration rates, especially Tianjin market, where the rate reached 100%.

Since 2019, carbon emissions trading in Chongqing, Tianjin, Guangdong and Shenzhen markets has become more dynamic. In 2022, market activity level rose 2.39 percentage points in Tianjin market, higher than data of Shanghai, Hubei, Guangdong and Shenzhen markets. Market activity level fell 0.23 percentage points in Beijing market, and 0.36 percentage points in Chongqing market.

The seven markets performed differently in average daily transaction prices. In detail, average daily transaction prices of Beijing market have shown an upward trend since the opening of the market, and soared year-on-year in 2022. In Tianjin market, average daily transaction prices have shown an upward trend since 2019, versus a downward trend before 2019, and remained at RMB28/t in H1 2022, and fluctuated around RMB36/t in the second half of 2022. Average daily transaction prices of Shanghai market have failed to show an upward trend until May 2016, and increased year-on-year in 2022. Average daily transaction prices of Hubei market have fluctuated from RMB25-50/t, and hovered at RMB46/t in 2022. With a U-shape trend before 2022, average daily transaction prices of Guangdong market fluctuated around RMB78/t in 2022. Average daily transaction prices fluctuated sharply at the beginning, have stayed at around RMB35/t for a long term and increased year-on-year in 2022. In Chongqing market, average daily transaction prices have fluctuated sharply since the opening of the market to October 2019, remained at around RMB25/t, grew in H1 2022 but declined in the second half of 2022.

Most participants could submit quotas to offset excess emissions on time, with the rates exceeding 99% in Guangdong, Shanghai, Tianjin and Hubei markets in 2021 (rates of the other three not yet released) and reaching 100% in Shanghai, Tianjin and Hubei markets in recent five years.

Non-pilot carbon markets in China

Sichuan carbon market was opened on December 16, 2016. By December 31, 2022, cumulative CCER trading volume had amounted to 36.15 million tons, including 2.08 million tons in 2022 (trading volume higher during January-March and May-August). Fujian carbon market was opened on December 22, 2016, and by December 31, 2022, cumulative online trading volume of carbon emissions quotas had reached 19.91 million tons, including 7.63 million tons in 2022.

CCER trading

CCER project (Chinese Certified Emission Reduction) was approved in 2012, and to standardize CCER trading mechanisms, examination on CCER project application was suspended in March 2017. In July 2021, CCER was brought into the national carbon emissions trading market, could be used to offset (5% at most) carbon emissions beyond quotas – which will help enterprises save related costs. In 2022, average daily transaction prices of CCER grew to the year’s highest of RMB64.45/t in September, and then fell slightly to RMB60/t. Domestic CCER market is forecast to be reopened in 2023.

Outlook of China’s national carbon emissions trading market

The national carbon emissions trading market will be improved in many aspects. More specifically, by 2025, more industries – most probably cement, steel and plate glass manufacturing industries – are expected to be brought into the national market, which – learning from domestic pilot and international carbon markets – will enrich carbon financial products and stimulate trading activities.

China is expected to increase input to improve the unified and standardized statistical accounting system for carbon emissions, and issue Provisional Regulations on Administration of Carbon Emissions Trading, both in 2023. By 2025, the national carbon market may introduce a new quota allocation mechanism from EU carbon market, i.e. allocating through auction. Related income will be used in environment protection, low-carbon projects, energy conservation and emissions reduction in underdeveloped areas, etc.