Daily Price Swings to be Limited to 10% by Upcoming China ETS

According to a recent report in The Securities Times, a Shenzhen-headquartered national financial newspaper, China’s national Emission Trading Scheme (China ETS) – a policy considered important for achieving the country’s net-zero goals – will initially set daily trading limits at 10 per cent of prices when it comes online late in June.

The report cites Mr Lai Xiaoming, the chairman of the the Shanghai Environment and Energy Exchange, which will host the trading. The Wuhan exchange will be responsible for managing the ETS registry platform.

Although China ETS, which is regulated by the Ministry of Environment and Ecology (MEE), was announced back in 2017, the scheme finally entered into force as of February 2021. In its initial phase, the China ETS will regulate entities from the power sector, retrospectively handing pollution allowances for the market’s first compliance cycle covering carbon dioxide (CO2) emitted during 2019-2020. It will cover up to 2,225 power plants across the country, which are responsible for close to 4 billion tonnes of carbon emissions.

While businesses and analysts look forward to the scheme’s execution, many experts have raised apprehensions that China ETS may fall short of both curbing the country’s emissions and incentivising a reduction in coal-fired power generation.

Mr Lai also informed that limits for block deals in national ETS will be set at 30 per cent of price moves at the beginning, and adjusted in accordance to market movements.

He further added that in the early stage of the national ETS, financial institutions or individual investors will be barred from participating in trading. This is so because the initial round is restricted to carbon-emitting utilities, but as soon as the trading mechanism matures, institution investors would be included.

At a recent conference, Mr Lai said China is looking to bring two more sectors into carbon emission verification this year and include them into the national ETS next year.

China had aimed to cover eight high-emission industries, including petrochemicals, chemicals, building materials, non-ferrous, paper-making, steel, power generation and aviation, into the national trading scheme.

Although the scheme has suffered many a delay in the past, China ETS has gained the government’s attention in recent time due to President Xi Jinping’s pledge to reach peak emissions before 2030 and attain carbon neutrality by 2060 in the country.