1. Chinese Carbon markets newsletter 2nd February 2015
Shenzhen ETS Market Movement
(1) Allowances price and volume increased in Jan 15
Shenzhen Emission Allowances (SZA) saw a significant upward trend in Jan 2015. Opening
price of SZA2014 on 5-Jan of CNY36.83 (21.62kt) saw a gradual climb to CNY41.98 (4.65kt)
on 30-Jan. January s peak was recorded on 28-Jan at CNY43.23 (13.71kt). Total traded
volume for Jan 15 is 189.043kt, with total of 20 active trading days. Prices of SZA2014
registered a week-on-week increase of 4.6%, almost 14% climb in Jan 15. While the
allowances traded in a very tight price range, prices managed to close above CNY40 mark.
On the other hand, we saw slightly less active trading in SZA2013 with total trading volume
of 51.62kt in Jan 15, with total of 18 active trading days. Although price peaked at CNY41.50
with 84 tons.
(2) Price expectations in the Shenzhen secondary market
In Jan 15, bids were seen increasing from CNY38 in early Jan 15 to CNY42 on the last few
trading days of Jan 15. Smaller sized offers managed to meet at the CNY42 price mark but
most volume offers were placed at CNY43 and above. The increase in price and traded
volume is an indication that compliance companies supply and demand has started to enter
the market since early Jan.
CCERs impact on Shenzhen ETS
Till date, there are 2 batches of CCERs approved and issued. There are a total of 26
projects with 13.7 mil CCERs available for trading. 25 out of 26 projects are from Cat 3,
pre-CDM CCER projects which are not available for use in Beijing, Shanghai and
Chongqing ETS.
Before CCER restrictions in Shanghai ETS, we have seen CCER forward contracts being
transacted in Tianjin Exchange, between Feng Steel Co Ltd and Tianjin Carbon Future
Asset Management Co Ltd of 60kt CCERs in the secondary CCER market. Another
significant deal was in the CCER primary market with CGN Wind Energy signing 2 million
CCERs as a futures option with Treasure Carbon.
With the uncertainty of CCER issuance and restrictions in different pilot ETS, we are
seeing an increase in the risks of using CCER in Shenzhen ETS as Shenzhen might also
impose restrictions after restrictions in Beijing, Guangdong, Hubei and Shanghai pilot
ETS. Many pilots restrict the CCER project types, regions or vintage years. Currently,
restrictions have not been announced in Shenzhen ETS but rumours have been heard,
Shenzhen may restrict project types that may have positive price impact on allowances
and eligible CCERs.
With restrictions in other ETS, market uncertainty looms in the CCER secondary markets
and scarcity of CCERs available for usage in certain ETS, gives pressure for an upward
2. price trend.
Ginga sees Shenzhen compliance companies more willing to use CCERs as a tool for
compliance or swaps between SZA and CCERs due to the high allowance price in the
secondary market. Some compliance companies Ginga spoke to are willing to sell their
excess allowances for profits.
Previous experience from 2014 compliance period
Pic from Crystal Carbon
Based on last year s compliance period, we see a peak in trading prices and volume in
Jun 2014. Prices were as high as CNY80 during end of Jun 14, due to last minute trades
from compliance companies short of allowances. This then translates to higher
compliance costs for many companies as many of them were not familiar with market
price movements and assets/cost management.
This year, Ginga expects compliance companies to act early and cover their short
positions for 2014 s compliance due to better knowledge in MRV and price movements.
Peak periods (trading prices and volumes) may shift earlier due to this phenomenon.
Ginga expects the peak period to be between Apr-May.
Comments from Ginga Environment
Into the 2
nd
year of compliance, many companies have equipped themselves with
sufficient knowledge in emission verification and trading. Companies with bigger positions
may have considered having personnel or department in-charge of their carbon assets.
This is a positive change for companies to prepare themselves for the national scheme in
2016.
Below are some suggestions from Ginga:
1. Know your emission and allowances/quota positions,
2. Find out the emission costs that your organization willing to accept,
3. Find out the best time to buy allowances for your shortage,
4. For companies with excess allowances, please contact Ginga for ways to profit
from emission trading.
For more information in reducing your compliance risks or to profit from carbon
trading, please contact Ginga Environment.
