The price of carbon allowances in China has risen by more than 60 percent, and the second compliance cycle has been fully launched

CCER (Nationally Certified Emission Reduction), which has been suspended for more than six years, is officially restarted!

With the Ministry of Ecology and Environment announcing on October 27 that the second compliance cycle of the national carbon emission trading market will be fully launched, more industries will be included in the national carbon market, carbon trading entities will be further enriched, and trading activity is expected to be further improved. Since the beginning of this year, the national carbon allowance price (referred to as carbon price) has risen by more than 60% this year, and the carbon price of the national carbon market (CEA) in October has been standing at the 80 yuan/ton mark for 11 trading days.

It is worth noting that in the carbon neutrality market, the scale of domestic green loans and green bonds has maintained double-digit growth, but the CSI Mainland Low-Carbon Economy Theme Index, which focuses on green, low-carbon and recycling, has been "halved" within two years. Industry insiders believe that with the further expansion of the carbon trading market and the acceleration of the achievement of the dual carbon goal, it will effectively increase the profitability of relevant enterprises and promote the further recovery of market confidence.

Carbon prices have risen by more than 60% this year

The national carbon market continues to be active, and carbon prices have risen by more than 60% this year. On October 27, the closing price of the "carbon allowance" listed on the national carbon market (CEA) was 78.71 yuan/ton, which is more than 60% higher than the opening price of 48 yuan/ton in the national carbon market this year. Prior to this, the carbon price has stood at the 80 yuan/ton mark for 11 consecutive trading days, and the highest transaction price reached 82.79 yuan/ton on October 20, while the average carbon allowance trading price in the national carbon market in 2022 is only 55.30 yuan/ton.

On October 27, the Ministry of Ecology and Environment introduced at a press conference that as of October 25, 2023, the cumulative trading volume of carbon emission allowances in the national carbon emission trading market was 365 million tons, with a cumulative turnover of 19.437 billion yuan, and the carbon price was maintained at 50-80 yuan/ton, forming a carbon price in line with China's current reality. The overall operation of the national carbon emission trading market has been stable, the role of price discovery has initially appeared, and the awareness and ability of enterprises to reduce carbon emissions have been significantly enhanced, and the expected construction goals have been basically achieved.

It is understood that on July 16, 2021, the national carbon emission trading market was officially launched and launched for trading, covering more than 4.5 billion tons of carbon dioxide emissions annually, becoming the world's largest carbon market covering greenhouse gas emissions. Xia Yingxian, director of the Department of Climate Change of the Ministry of Ecology and Environment, said at a press conference on October 27 that the carbon emission market mechanism has been continuously improved, and the first compliance cycle of the national carbon emission trading market has been successfully completed, and the second compliance cycle has been fully launched.

The full launch of the second compliance cycle is preceded by intensive policy releases. On October 18, the General Office of the Ministry of Ecology and Environment determined that the scope of verification work is key industries such as petrochemicals, chemicals, building materials, iron and steel, nonferrous metals, papermaking, and civil aviation. On October 20, the Ministry of Ecology and Environment (MEE) and the State Administration for Market Regulation (SAMR) jointly issued the Administrative Measures for Voluntary Greenhouse Gas Emission Reduction Trading (Trial).

On the evening of October 24, the Ministry of Ecology and Environment officially released the first batch of project methodologies for voluntary greenhouse gas emission reduction projects, including afforestation carbon sinks, grid-connected solar thermal power generation, grid-connected offshore wind power generation, and mangrove construction, and the CCER trading market ushered in a new increment.

There is still a huge room for carbon prices to rise, and there is huge room for corporate profits

"With the reopening of the market, the price discovery mechanism will be further enhanced, and the price difference between China and overseas carbon prices is high, and it is expected that domestic carbon prices will still have considerable upside. Xu Haoliang, an analyst at Minsheng Securities, believes.

Statistics show that in 2022, the average carbon price in the EU is expected to be 88.36 euros/ton, while the domestic average price is 55.30 yuan/ton in the same period. By February 22 this year, the price of the main futures contract (EUA) of the European benchmark carbon allowance exceeded 100 euros/ton, which was converted into about 720 yuan/ton. Over the past three years, the cost per unit of carbon emissions from a factory or power plant in the EU has risen fivefold. On October 1 this year, the world's first "carbon tariff", the European Union's Carbon Border Adjustment Mechanism (CBAM), began trial operation, which has been in trial operation for nearly a month.

The construction of the domestic carbon emission market is also accelerating, and the scale of domestic green loans will further increase as the eight major domestic industries are included in the national carbon market. As of the end of the second quarter of 2023, the balance of green loans in domestic and foreign currencies reached 27.05 trillion yuan, a year-on-year increase of 38.4%. Among them, loans to projects with direct and indirect carbon emission reduction benefits were 9.60 trillion yuan and 8.44 trillion yuan respectively, accounting for 66.7% of green loans.

In the capital market, the CSI Mainland Low-Carbon Economy Thematic Index, which focuses on green, low-carbon and recycling, has adjusted by more than 50% since November 2021, with an adjustment period of nearly 24 months, and the current index valuation is 14.62 times PE (TTM), which is at the lowest level in history. Carbon Neutrality ETF (159790), as the largest carbon neutrality theme fund in the whole market, also hit a new low of 0.548 since listing on October 26.

Guotai Junan Research Report believes that with the acceleration of the connection between green certificates and the national carbon market and the reopening of the market, it is expected to further improve the carbon trading market, promote the achievement of the dual carbon goals, and effectively promote energy conservation and emission reduction, and increase the profitability of related enterprises. Moreover, after more than two years of time adjustment, there is a high probability that it will gradually enter the rising stage at the bottom of the current fundamentals, valuation and stock price, and it is optimistic about the huge investment opportunities brought by the upgrading of China's manufacturing industry and "carbon neutrality".

Editor-in-charge: Gui Yanmin

Proofreader: Li Lingfeng