China's Carbon Trading Market Gets Brisker as Compliance Deadline Approaches

China's national carbon market, a major institutional innovation to facilitate emissions reduction, is getting brisker as its first compliance deadline is at the door, and analysts believe that it will enjoy greater vitality with more industries included.

The average daily trading volume of carbon emissions quotas saw a notable increase in November, data from the Shanghai Environment and Energy Exchange showed.

Last month, the national carbon market saw a trading volume of 23.03 million tonnes, with a turnover of 939 million yuan (about 147.32 million U.S. dollars), accounting for almost half of the total since it started online trading on July 16.

"Trading activities in the national carbon market are predicted to increase markedly when compliance deadline falling on Dec. 31 approaches," said Liu Jie, general manager of the exchange, adding that the market will witness robust activities in the fourth quarter.

While the trading volume of carbon emissions allowance expands, the price is in dynamic balance. The closing price for carbon quotas at the market registered 42.94 yuan per tonne Friday, lower than the opening price at 48 yuan per tonne on the first trading day.

The national carbon market has been running smoothly since it was launched and the quota price always fluctuates within a reasonable range," said Sun Chuanwang, a professor of energy and economy at Xiamen University.

Some industry insiders noted that the national carbon market has much potential, as the emissions trading system will cover more industries amid the country's all-out efforts to meet its 2060 carbon-neutral target.

"Up to now, the over 2,000 enterprises involved in the market are all in the power generation sector, which means it has broad development space for other carbon-intensive industries," said Zhu Yaming, a consultant with Ernst & Young China.

The country is promoting schemes for including carbon emitters from other sectors such as petrochemical and steel industries into the trading group, improving the market-based mechanisms to control greenhouse gas emissions.

Financial institutions will be allowed to join in the trading system in the future, playing a vital role in making the national carbon market more active.

According to Wang Yifeng, chief financial analyst with Everbright Securities Research Institute, financial institutions can help with improving the liquidity of the carbon market and provide various services such as carbon emissions quota financing and carbon assets management.

The scale of the carbon financial products should be expanded on the basis of clarified and fine-tuned market rules, said Zhu, noting that a safety net should be created to control financial risks.