Interview with the relevant person in charge of Guotai Junan: It is hoped that the national carbon market will include institutional investors in batches
As the second compliance period approaches, the national carbon market has risen in volume and price. Last week, the total trading volume of CEA (carbon emission allowance) in the national carbon market was 6.4611 million tons, with a total transaction volume of about 407 million yuan, and the comprehensive price closing price was 68.43 yuan, a cumulative increase of about 25% from the end of last year. At the same time, the first National Carbon Market Simulation Trading Competition is in full swing, with 133 companies participating in the auction last week, with a total weekly trading volume of 360 million tons and a total turnover of 20.002 billion yuan.
How does it feel to participate in the Demo Trading Contest? What is the significance of the relevant rules and settings of the competition for real trading? Recently, a reporter from the Securities Times interviewed the participants of the competition - the relevant person in charge of Guotai Junan. The person in charge said that since the launch of the competition, the company has actively participated in trading and given full play to its function of providing liquidity for the market, "I hope that the national carbon market can rhythmically include some high-quality and experienced institutions in batches to provide liquidity." ”
In the view of the person in charge, the simulated quota market has good liquidity, stable supply and demand relations and price signals, which lays a good foundation for participants to enter the real market, and also provides research materials for non-performing entities to participate in carbon market transactions and the impact of primary market auction implementation.
The inclusion of institutional investors is expected to improve market efficiency
Securities Times: Since the launch of the first National Carbon Market Simulation Trading Competition, as a non-performing entity, how has Guotai Junan's participation in trading been?
Relevant person in charge of Guotai Junan: Since the launch of the competition, we have actively participated in trading and given full play to our function of providing liquidity for the market. In the secondary market, we have traded millions of tons and more than 100 transactions, serving the buying and selling needs of dozens of simulated trading companies. Our first week of trading was almost evenly matched by buying and selling.
We also actively participated in the one-way auction of simulated quotas carried out recently, with a trading volume of hundreds of thousands of tons. In subsequent transactions, we will also use these quotas to further serve the needs of simulated trading enterprises.
Securities Times: The national carbon market has not yet included institutional investors, once it is allowed, will Guotai Junan participate in the real trading of the national carbon market?
Relevant person in charge of Guotai Junan: Will participate. Although the national carbon market has not yet allowed institutional access, on the one hand, we actively communicate with the relevant authorities, hoping to bring in some high-quality and experienced institutions to enter the market in batches and rhythmically to provide liquidity, and on the other hand, actively track market dynamics and pay attention to the development of relevant policies of the national carbon market, hoping that in this way, we can better serve entity enterprises after allowing access in the future.
Securities Times: At present, how is the layout and preparation of Guotai Junan's carbon trading?
Relevant person in charge of Guotai Junan: At present, Guotai Junan is mainly involved in proprietary trading business to provide liquidity for the market. Guotai Junan took the lead in establishing an over-the-counter carbon finance business team in the securities industry in 2014, was the first to obtain the carbon trading license of the China Securities Regulatory Commission in 2015, and was also the first domestic securities company in China to join the International Emissions Trading Association (IETA), and successively participated in 7+1 pilot carbon markets in Beijing, Shanghai and Guangdong and the trading of China's certified voluntary emission reduction (CCER) market. Since its exhibition, Guotai Junan has been awarded as an outstanding member of pilot carbon emission rights exchanges in Beijing, Shanghai and Guangdong for many consecutive years, and is an important participant and influential pricing trading institution in the domestic carbon trading market.
As of June 2023, Guotai Junan has accumulated a spot trading volume of about 67 million tons in the domestic market, covering entity enterprises in various industries such as power generation, cement, iron and steel, and petrochemicals. Among them, after the launch of the national carbon market in 2021, about 15 million tons of CCER will be traded, about 3 million tons of CCER will be directly sold to the national carbon market emission control enterprises, and the total amount of key emission enterprises served will be about 60 million tons, accounting for about 1.3% of the total amount of the national carbon market.
At the same time, Guotai Junan has extensively cooperated with important groups and government departments such as forestry, new energy and smart mobility in emission reduction project declarations and emission reduction transactions, and is expected to serve customers with an annual emission reduction scale of millions of tons, and the emission reductions generated are diverse, including CCER, various international voluntary emission reductions, and carbon inclusion in each pilot area.
Guotai Junan is also an industry leader in carbon market business innovation, and has successively completed the first CCER transaction, the first carbon inclusive transaction, the first income certificate linked to carbon emission quotas, and the first over-the-counter option linked to domestic carbon emission rights in the domestic securities industry, exporting high-quality carbon financial services to the market, covering risk management, financial integration and other aspects, helping enterprises effectively revitalize carbon assets and help carbon price discovery.
At present, the fixed income foreign exchange commodity department (FICC) of Guotai Junan headquarters and its overseas subsidiaries have the trading conditions of domestic and international carbon markets, and can provide enterprises and traders in the domestic and foreign industrial chain with multi-dimensional diversified services including carbon asset spot trading, emission reduction purchase transaction (ERPA), carbon repurchase transaction, carbon offset trading and related carbon financial investment products.
Carbon finance helps the national carbon market move towards a trillion-dollar scale
Securities Times: A number of securities firms, including Guotai Junan, have obtained self-operated licenses for carbon trading, in your opinion, what are the reasons why securities firms plan to deploy the carbon trading market? How big is the business space?
Relevant person in charge of Guotai Junan: The plan to deploy the carbon trading market is because carbon finance plays an important role in serving entities, promoting energy conservation and carbon reduction for enterprises, and promoting the realization of the national dual carbon goals.
The amount of capital required by enterprises in the process of moving towards the dual carbon goal is huge, and a large amount of investment needs to be satisfied through the financial market, and the green and low-carbon transformation of enterprises cannot be separated from the full participation of capital. With the maturity of the carbon market, enterprises can also obtain financing from the carbon market through financial instruments such as pledges, repurchases, special bonds, and asset securitization, which is an important function of the carbon market. We recommend that the competent authorities study and issue relevant rules and guidelines as soon as possible, give full play to the financing function of the carbon market, and use finance to promote corporate financial integration.
The carbon market is essentially a market-oriented tool to optimize emission reduction costs through trading to discover carbon prices and influence the investment decisions of participants, and trading pricing is the key to the role of carbon markets. We suggest that the authorities should introduce mechanisms that facilitate price discovery, such as learning from the institutional arrangements of market makers in other financial markets, allowing qualified institutional investors to participate in spot market transactions, and introducing forward or futures instruments when the spot market is mature.
Carbon finance helps investors establish green investment concepts and open low-carbon investment channels. The carbon inclusive mechanism launched by some pilot carbon markets and the CCER mechanism that will be restarted soon, mobilize the enthusiasm of enterprises and the public to participate in emission reduction, and at the same time promote and benefit some low-carbon technologies for the public, and also cultivate public awareness of emission reduction and investment in green financial products. Guotai Junan has continuously invested in and traded more than 50 CCER emission reduction projects in the past few years, including renewable energy, coalbed methane utilization, afforestation carbon sinks, and public cycling, etc., and continues to supply offset emission reductions to enterprises with carbon neutral needs.
In terms of business space, in terms of the national carbon market alone, more than 2,000 power generation enterprises are currently included, with a total volume of about 4.5 billion tons and a total market value of more than 300 billion yuan.
It is recommended to design the quota paid auction policy at the same time
Securities Times: The simulation competition has carried out the paid distribution of quotas, how do you view this form of quota distribution? What are the recommendations for quota issuance for live trading?
Relevant person in charge of Guotai Junan: Primary market auction is an important market regulation mechanism to maintain the stability of carbon prices, ensure the healthy development of the market, and continue to play the effect of emission reduction. Auctions can provide stable price support and help market price discovery.
From the results of simulated trading, the transaction price and issuance volume of the primary market have a significant impact on the trend of the secondary market, and the price of the secondary market is mainly driven by the volume price of the primary market and the actual supply and demand relationship. When the market was in the stage of continuous limit increase and overheating in the first week, the primary market auction effectively transmitted the price expectation and formed a certain restraint on the secondary market price. In the second week, driven by the new sufficient supply of the primary market, the price expectations of market participants were generally reduced, and some of the more active key emitters began to release stock quotas, resulting in a continuous decline in secondary market prices.
For the issuance of quotas for real transactions, our suggestions are as follows: First, it is recommended to take the auction policy as an important part of the design of market supply and demand, and design it simultaneously with policies such as quota allocation and offset mechanism. The effectiveness of auction policies is based on the stable and reasonable relationship between market supply and demand, so it is necessary to ensure the fairness and justice of the total quota setting and quota allocation, and design these policies in coordination with auction policies. Oversupply will lead to a decline in the price of allowances, and insufficient incentives for carbon reduction will not play an effective role in the allocation of emission reduction resources. Demand in short supply will lead to excessive pressure on enterprises to reduce emissions, which will have a negative impact on the overall development of the economy.
Second, attention should be paid to the long-term stability, sustainability and predictability of policies. Long-term stability, continuous predictability of policies is an important prerequisite for enhancing market confidence. Establish a long-term and stable auction mechanism (e.g. drawing on the announcement model of the auction calendar to determine the auction arrangement in advance; and the establishment of a long-term stable auction reserve price pricing mechanism, such as the average price of the secondary market in the first N months, etc.), which is conducive to stabilizing market expectations, reducing uncertainty, and guiding long-term investment, thereby driving the development of emission reduction technology industry.
Third, do a good job in auction information disclosure. From the experience of the international market and the pilot, there is generally room for improvement in the disclosure of auction information in the domestic market (including the short time between the issuance of the auction notice and the holding of the auction, and the insufficient disclosure of the whereabouts of auction funds). From the perspective of building credibility and maintaining the long-term stability and effectiveness of market price signals, it is suggested that the disclosure time of quota auction activities should be as far in advance as possible, leaving sufficient time for market participants to react and make decisions; At the same time, a special management mechanism for carbon market auction revenue can be established to improve the construction of the carbon market and promote green emission reduction investment.
Finally, attention should be paid to ensuring equitable distribution while gradually expanding the coverage of industries, and promoting coordinated development between regions and industries. The goal of paid allocation is to promote the carbon market to achieve policy goals and promote the implementation of industrial policies, so it is first necessary to ensure that it is in line with the guidance of industrial policies. In the future, the national carbon market will gradually include industries such as steel, cement and nonferrous metals, and it is recommended to comprehensively consider the emissions, actual operating conditions, emission reduction capacity and other factors of each industry to determine the proportion of paid allocation.
