The national market is open, what are the gains and losses of the 10-year pilot carbon emissions trading?
Author: Lin Chunting
On July 15, the Shanghai Environment and Energy Exchange issued an announcement on the opening of the national carbon emissions trading market. The national carbon trading market will open on July 16, 2021.
"It's finally going to start!" Zheng Yunchang couldn't help but sigh after learning that the National Carbon Emissions Trading Market (hereinafter referred to as the "National Carbon Trading Market") was officially opened.
On July 15, the Shanghai Environment and Energy Exchange issued an announcement on the opening of the national carbon emissions trading market. The national carbon trading market will open on July 16, 2021.
Zheng Yunchang is the chief carbon trading engineer of China Resources Power. He was exposed to carbon emissions trading as early as 2007.
Since 2011, he has participated in the pilot work of China's carbon trading and has witnessed a decade-long exploration of China's carbon trading market.
In 2011, China launched carbon emission trading pilots in seven provinces including Beijing, Tianjin, Shanghai, Chongqing, Hubei, Guangdong, and Shenzhen, which opened a long road of exploration.
The so-called "carbon emission right" refers to the right of an enterprise to emit greenhouse gases into the atmosphere in accordance with the law.
Approved by the local Development and Reform Commission (now in charge of the environmental protection department), companies will obtain quotas for greenhouse gas emissions within a certain period of time.
When the company's actual emissions exceed the quota, the excess must be purchased with money; when the company's actual emissions are less than the quota, the surplus can be carried forward or sold.
As of March 2021, the carbon market in the pilot carbon trading areas covers more than 20 industries such as steel, power, cement, and nearly 3,000 key emission companies, covering a total of 440 million tons of carbon emissions, and the cumulative transaction amount is about 10.47 billion yuan.
Within the scope of the pilot, the total amount and intensity of corporate carbon emissions have achieved a "double reduction", demonstrating the effect of the carbon market in controlling carbon emissions at a lower cost.
In view of the national carbon market covering more than 4 billion tons of emissions, China will become the world's largest carbon market covering greenhouse gas emissions.
The ten-year pilot is a practical experience accompanied by gains and losses, which will be a valuable asset for the construction of the national carbon trading market in the future.
Pilot and innovation
The carbon market originated from the "Kyoto Protocol" that came into effect in 2005, and its purpose is to promote the path of greenhouse gas emission reduction by market-based means.
This year, the "Kyoto Protocol" established the CDM (Clean Development Mechanism Trading System), allowing developed countries to fulfill their emission reduction obligations by reducing their domestic greenhouse gas emissions or purchasing greenhouse gas reductions from other developing countries. The method of emission credits to fulfill their obligations.
In 2007, China established the National Leading Group for Climate Change and Energy Conservation and Emission Reduction, and announced the "China National Plan for Climate Change."
In 2008, the National Development and Reform Commission established the Department of Climate Change to undertake the specific tasks of the National Leading Group for Climate Change and Energy Conservation and Emission Reduction. The Department of Energy Conservation and Environmental Protection is responsible for energy conservation and emission reduction.
One year before the completion of the Kyoto Protocol, in October 2011, the National Development and Reform Commission issued the “Notice on Carrying Out the Pilot Work of Carbon Emission Trading”, agreeing to Beijing, Tianjin, Shanghai, Chongqing, Hubei, Guangdong and Shenzhen to carry out carbon emission trading. Pilot emissions trading.
In 2014, Xie Zhenhua, then deputy director of the National Development and Reform Commission, said when asked by the media that the seven pilot regions included eastern, central and western regions. The purpose was to explore China’s carbon trading systems and mechanisms in different development regions. Prepare for the establishment of a national carbon trading market.
On June 18, 2013, the Shenzhen pilot took the lead in launching the transaction.
In 2016, after the first batch of 7 pilots, Fujian and Sichuan also started the construction of pilot projects for carbon emissions trading in their provinces.
As the main body of the market, the company has continued to explore and innovate in the course of ten years of pilot projects.
"Through these years of hard work, our carbon trading team has been honed, and it is now completely possible to conduct independent data accounting and trading." Zheng Yunchang is one of the main personnel of China Resources Power (00836.HK) participating in CDM carbon trading. 1. He told a reporter from China Business News 1 ℃, “At that time, China Resources Power had 46 CDM clean energy projects participating in carbon trading, and obtained good benefits from it.” From 2008 to 2012, it was the same as many power companies in China. , China Resources Power also participated in CDM carbon trading.
Including China Resources Power, some companies have gradually established a relatively complete carbon trading system, which is more of an innovation in groping.
Take China Resources Power as an example. The company has established a carbon asset management system, which can check the monthly carbon emission data, surplus and deficiency of each power plant in real time, and can also perform internal balance through the system, such as A and B power plants. The adjustment between.
The transaction method is also changing. For example, China Resources Power conducted a cross-sector collaborative transaction within the China Resources Group, and conducted a coordinated transaction of up to 12 million yuan in Guangdong Province-China Resources Power took the balance of a shut down power plant The lower carbon quota quota was sold to another listed company in the group.
China Resources Power tried an innovation in carbon finance-custody.
According to Zheng Yunchang, the so-called custody refers to allegations that companies entrust a custody agency to hold carbon assets on their behalf, and conduct centralized management and trading of carbon assets in the name of the custody agency.
Similar financial innovations include replacement and carbon borrowing. In the future, with the steady improvement of the carbon market, the scale of the secondary carbon financial market will continue to expand.
Like China Resources Power, Shenergy Carbon Technology is also carrying out financial innovation.
Liu Xian, executive director and general manager of Shenergy Carbon Technology, said earlier this year that carbon financial products that the market can explore in the future include carbon forwards, carbon funds, carbon quota pledges, and so on.
Carbon financial products are conducive to discovering and stabilizing the price of carbon, while also bringing liquidity to the carbon market.
As the carbon market matures, carbon finance will play an increasingly important role in it.
The industry generally believes that the current Chinese carbon market is mainly carried out by companies that have real carbon emission requirements for spot transactions, resulting in low activity and discontinuous prices.
On the other hand, in the carbon market of developed countries, most of the transactions come from financial products with spot as the target. Financial institutions such as banks, insurance, funds, etc. can participate in the carbon market through carbon financial products.
It is worth noting that a report from the Research Bureau of the Central Bank pointed out that to cultivate an active trading and nationally unified carbon emission rights market, trading institutions should be given greater flexibility in terms of trading methods and explore carbon emission rights under the premise of strict supervision. Trading venues carry out continuous trading and call auctions; at the same time, the access is appropriately relaxed, and relevant financial institutions and carbon asset management companies are encouraged to participate in market transactions and innovate product tools.
A lot of problems
In the past ten years, these pilots have their own characteristics, and have explored the core elements of the carbon market such as industry coverage, total quota setting and allocation, and compliance mechanisms based on their own conditions, providing a wealth of practical experience for the national carbon trading market, and leaving Some unfinished problems have been addressed.
In 2013, after the first batch of seven pilot provinces officially launched carbon trading, the head of the deal was the unusually deserted market transactions.
"There are many reasons for the inactive market transactions. First, as the main participants, power companies have been affected by the decline in electricity prices and high coal prices in recent years. It is difficult to survive. Enterprises with quota gaps can only participate in transactions during the performance season." Zheng Yunchang told China Business News 1℃ Reporter, "Some pilot provinces are restricted by trading rules, with fewer institutional investors and imperfect trading varieties. Under these circumstances, it is difficult for the market to become active."
At the same time, the pilot local economic structure, trading rules, emission calculation methods and other factors are also different, and cross-regional transactions cannot be conducted among the pilots, making the originally inactive market even more sluggish.
Through comparative research on various carbon trading pilots and international carbon trading markets, Wang Zhixuan, a member of the National Climate Change Expert Committee and former full-time vice chairman of the China Electricity Council, also found that domestic pilots have experienced inactive carbon trading, low liquidity, and carbon trading. The development of price marketization and power marketization is not coordinated.
"In individual pilots, carbon prices are sometimes as high as 80 yuan per ton, but because (some) pilots are located (regions) there are fewer industrial enterprises, and the scale of market transactions is small. Although the prices are high, the market is not representative. "Zheng Yunchang believes that from a pilot point of view, there is still room for improvement in domestic carbon trading rules. On the whole, domestic pilot provinces have lower carbon prices than mature European carbon trading markets, and there is still room for China's carbon quota prices to be in line with international standards. However, there are also cases of inflated prices in individual areas, which again requires reasonable control.
Since the pilot, the carbon allowance trading prices in the pilot markets have varied greatly, ranging from 10 yuan to 60 yuan per ton, and the average price is around 20 yuan per ton.
In Wang Zhixuan's view, carbon prices should not be subject to greater volatility.
"Volatility is often closely linked to market hype and speculation." The market urgently needs reasonable pricing. "If the carbon price is too low, it will give people the illusion that reducing carbon dioxide emissions can be done at a very low cost. This is detrimental to energy conservation and carbon reduction. But if the price is too high, it will also be detrimental to the country’s low-carbon transition."
Allocation of allowances is the core of the carbon market, and it is also a key link to better play the role of the government.
At present, the more reasonable quota allocation method is the benchmark method, that is, the "carbon emission intensity industry benchmark value". The government determines the allowable carbon emissions of a certain industry unit activity level based on the annual emission management target and the overall emission level of the industry. It is mainly used for carbon emissions. Quota allocation in the trading mechanism.
However, in actual operation, due to the different designs of the pilot provinces, the identification of the baseline is also different.
Ideally, given a certain benchmark value, compared with the actual emissions of the company, whether the quota received is a surplus or a loss, mainly related to factors such as the efficiency of the unit, the quality of the coal used, and the implementation of energy-saving and emission-reduction measures. Companies with a quota surplus can sell their quotas in the carbon market, while companies with a shortage of quotas need to buy their shortfalls in the carbon market.
However, in the actual operation of the pilot, due to the excessively high benchmarks in some places, some companies that have controlled energy consumption well have not been recognized for their value in quotas.
"We have a power plant with high efficiency and low coal consumption, but even so, we still need to spend 10 to 20 million yuan every year to purchase quotas." A person in charge of a power group said in an interview with a reporter from China Business News. The purpose of establishing a carbon market is not to cut meat from companies, but to encourage companies with high efficiency and low coal consumption to generate more electricity, and at the same time make some investments to reduce coal consumption and improve efficiency."
In addition, some interviewees introduced to the 1°C reporter of China Business News that in some pilot areas, the benchmarking standards are low and implementation is relatively loose, which makes it too easy for some companies to implement quotas.
Falsifications also occurred during the pilot process.
For example, Wang Zhixuan introduced that during previous inspections, it was discovered that individual companies or third-party organizations had fraudulent carbon emissions data.
In addition, in some pilot provinces, no matter how many quotas are lacking in power generation companies, the performance limit is set at a quota of 200,000 tons.
"From the market perspective, this is unreasonable, but the purpose of doing so is to reduce the burden on controlled companies. At present, many thermal power plants are struggling to operate." An interviewee told the CBN 1℃ reporter.
Due to the above various reasons, carbon trading in individual provinces has been intermittent since the pilot, and some have even experienced no trading after the first transaction.
Some interviewees told the CBN 1℃ reporter that the unusually deserted market transactions have caused many companies to have departments responsible for carbon trading dispensable, and many of the carbon trading personnel are part-time and lack professionalism.
Some companies set up special companies for the purpose of carbon trading. As a result, they can only do sideline businesses that have little to do with carbon trading.
Walk fast
Over the past ten years, because the market has been too deserted, a large number of people who participated in the CDM and China's carbon rights trading pilots in the early stage have moved to other positions, and some have even left the industry completely.
However, as the national carbon trading market is about to go online, the enthusiasm of many people has been mobilized.
Some companies began to reorganize new transaction structures, set up new transaction departments, and gradually replaced part-time staff by full-time staff.
All of this is preparing for the establishment of a national carbon trading market.
Talking about the choice of the national carbon market for online trading at this time, as a participant in the design of the national carbon market mechanism, Wang Zhixuan believes that it is "just in time". "The problems before it is too early have not been well resolved, and it is too late again. It is not conducive to the promotion of China’s low-carbon economy.” He hopes that the following development of the national carbon trading market will develop steadily and rapidly, so that companies, investors and more related parties can release a mechanism to promote carbon emission reduction. Positive signal.
What Wang Zhixuan expects most is that after the national carbon trading market is launched, it will be stable and active, and minimize violent fluctuations as much as possible.
"Some of the problems that have existed in the pilot process in the past ten years may still appear after the national carbon trading market goes online. This needs to be solved continuously in practice." He said that even the European carbon market is carried out under a fully market economy model. The market has gone through several stages in the development process and is still being improved.
"Judging from the pilot experience of the past ten years, the activity of market transactions reflects the intensity and expectations of carbon emission reduction policies. After the establishment of the national carbon trading market, there may also be some enterprises that have obtained quotas, in order to reduce risks, Weak willingness.” Wang Zhixuan believes that another problem at present is that carbon prices fluctuate greatly and have little relevance to related carbon emission reduction factors. The main reason is that the carbon market mechanism and the macroeconomic policy of carbon reduction are not related. Caused by high.
Many interviewees believe that this year is the first year of the national carbon trading market, and quotas may be relatively loose. However, as the market develops, companies will need to invest more real money to purchase.
"So everyone now attaches great importance to it and strives to make all the preliminary preparations." Zheng Yunchang said.
The first batch to be included in the national carbon emission quota management is the power generation industry, with a total of 2,225 power generation companies and self-provided power plants, with a total carbon dioxide emissions of about 4 billion tons/year.
These companies will become the main players participating in the national carbon market transactions. More than 90% of them are participating in the carbon market for the first time. There are 186 power generation companies that have participated in the regional pilot carbon market before.
In Zheng Yunchang’s view, “In the coming period, the national carbon trading market will move forward with small steps and fast pace. In this process, for enterprises, more talents need to be invested in the market in order to catch up. To live up to market opportunities."