(Economic Observation) How is the carbon price in China's carbon market formed?

　　China News Service, Beijing, July 14th, title: How does the carbon price of China's carbon market come into being?

　　China News Agency reporter Ruan Yulin

　　The national carbon emissions trading market will be launched in the near future.

The carbon market will guide the optimal allocation of carbon emission reduction resources through price signals. How is the carbon price in the national carbon market formed?

　　Zhao Yingmin, Vice Minister of China’s Ministry of Ecology and Environment, stated at the State Council’s policy briefing on the 14th that the carbon market will use price signals to guide the optimal allocation of carbon emission reduction resources, thereby reducing the emission reduction costs of the whole society and promoting investment in green and low-carbon industries. Guide the flow of funds.

This is an important effect pursued by the carbon market, so carbon prices are very important.

Local pilot: The weighted average carbon price in recent years is about RMB 40

　　"At present, the national carbon market has not yet started, so it is hard to say what the carbon price is," Zhao Yingmin said frankly.

However, judging from the operation of the seven local pilots across the country, the weighted average carbon price in the past two years has been around RMB 40.

At present, in the system design related to the national carbon market, we consider policy measures such as improving allowance allocation methods and introducing offset mechanisms to guide market expectations, thereby forming a reasonable carbon price.

　　Since October 2011, China has launched local pilot projects for carbon emissions trading in Beijing, Tianjin, Shanghai, Chongqing, Hubei, Guangdong, and Shenzhen. The local pilots have successively launched carbon emissions trading in June 2013.

These pilot markets cover nearly 3,000 key emission units in more than 20 industries including power, steel, and cement.

As of June 2021, the cumulative trading volume of carbon market allowances in pilot provinces and cities was 480 million tons of carbon dioxide equivalent, with a turnover of approximately 11.4 billion yuan.

　　"The level of carbon price is a market signal. Companies that conform to the general trend of green and low-carbon transformation will have a favorable opportunity for development." Zhao Yingmin said, in the context of carbon peaks and carbon neutrality, all parties have expressed interest in greenhouses. Gas emission management is expected to gradually rise. Therefore, the key for relevant companies, especially those with a shortage of allowances, is to correctly view the opportunities and challenges brought about by carbon prices from the perspective of promoting low-carbon transformation of the industry.

Reasonable allocation of quotas: reward advanced and punish backward

　　This year is the first compliance cycle of the national carbon market, including 2,225 power generation companies and self-provided power plants included in the key emission units of the power generation industry.

According to the quota allocation method, all allowances for 2019-2020 will be allocated free of charge, and the benchmark method will be used to calculate the quotas of units owned by key emission units.

　　The Ministry of Ecology and Environment has made it clear and steadily formulated an implementation plan for quota allocation.

The power generation industry was the first industry to be included in the national carbon market. At the initial stage of the market, only spot trading of allowances was carried out among key emission units in the power generation industry.

　　"In terms of the rationality of the allocation of allowances, the current quotas are based on the industry benchmark method with intensity control as the basic idea, and free allocation is implemented." Zhao Yingmin said, this method is based on the actual output and benchmarks the industry’s advanced carbon emission levels. Free distribution and linked to actual output not only reflects the principle of rewarding advanced and punishing backwardness, but also taking into account the current institutional arrangements for China to list carbon dioxide emission intensity as a binding indicator.

　　Zhao Yingmin said that in the design of the quota allocation system, considering the affordability of some enterprises and their adaptability to the carbon market, they have appropriately controlled their quota gaps. Enterprises that need to purchase quotas to fulfill their contracts can also purchase prices through the offset mechanism. Lower voluntary emission reductions will further reduce compliance costs.

Reasonable carbon price: Provide effective price incentive signals for carbon emission reduction companies

　　Zhang Xiliang, head of the national carbon market overall design expert group, estimates that after the national carbon trading market is launched, the carbon price should not be lower than the cost of reducing one ton of carbon dioxide, and it should be between 7 and 15 US dollars from 2020 to 2030.

　　CITIC Securities analysts believe that in the early stage of the carbon market, more than 2,000 power generation companies across the country participated in the transaction. The transaction price center is expected to be about 30 yuan per ton, and the total market value of carbon allowances is about 168 billion yuan. It is expected that carbon prices will rise moderately in the future.

　　Zhao Yingmin said that from a microscopic and short-term perspective, the carbon price is mainly determined by the supply and demand of allowances. From a macroscopic and long-term perspective, the carbon price is determined by the overall conditions and trends of economic operation and industry development.

Frankly speaking, too high or too low carbon prices are not good.

Too low a carbon price will dampen the enthusiasm of companies to reduce emissions; too high a carbon price will also cause some high-carbon companies to overburden.

　　"Therefore, a reasonable carbon price can not only demonstrate China's determination and strength to achieve the goal of carbon peak and carbon neutrality, but also provide effective price incentive signals for carbon emission reduction companies." Zhao Yingmin said, carbon price is through market transactions. Therefore, it is normal for the carbon price to fluctuate, but violent fluctuations, too high or too low are not conducive to the long-term stable operation of the carbon market.

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