On January 14, 2025, China's national carbon emission trading market (National ETS) recorded its first zero-trade day since its 2021 launch, followed by another on January 16, signaling a post-compliance "cooling-off" period. This lull stems from two key factors: firstly, trading activity is predominantly concentrated in the fourth quarter due to compliance deadlines, resulting in quieter periods at other times. Secondly, frequent policy updates since mid-2024 have led to diverging expectations between buyers and sellers regarding trends in carbon emission allowance (CEA) prices.
Sellers remain bullish on CEA prices due to two factors:
- Shorter Compliance Cycle: The shift from a two-year to a one-year compliance cycle boosted trading frequency. For instance, the CEA turnover rate rose from the previous 2%-3% to 3.7% in 2024, indicating heightened market activity as companies adjusted to annual compliance requirements.
- Tighter Quota Supply: The expectation of a tighter quota supply has supported CEA prices, as the anticipated trend of reducing CEA allocations encouraged compliance-driven companies to purchase more CEAs on the market. This sentiment was further reinforced in late April 2024, when the Ministry of Ecology and Environment (MEE) sought feedback on CEA allocation plans before implementing the "Interim Regulation on Carbon Emissions Trading Management." Market participants anticipated tighter quotas, the introduction of paid CEA allocation mechanisms, and the expansion of the National ETS, all contributing to the upward pressure on CEA prices. On April 24, 2024, the daily average price of CEA for open bid trading hit a record high of 101.05 yuan/tonne, breaching the 100-yuan threshold for the first time.
However, the updated CEA carryover rules and uncertainties around 2025 quota volumes are dampening buyer enthusiasm. By end-2025, companies holding surplus quotas exceeding 10,000 tonnes must sell a portion to increase their carryover limits. Meanwhile, the government's lenient approach to quotas for newly included industries is expected to boost market supply, potentially capping price gains. Market consensus suggests the 2025 mainstream CEA prices will average around 100 yuan/tonne (up from 96 yuan/tonne in 2024, a 40.9% rise), with prices likely peaking at 120-130 yuan/tonne near compliance deadlines.
The above content is the major conclusions and highlights extracted from China (Energy Transition) Policy Perspective. To get detailed full text, send an email to glconsulting@mysteel.com
