Liu Jie, General Manager of Shanghai Environmental Exchange: The national carbon market has electricity first, and other industries are mature and one is included

"In two years, China's carbon market has changed very much, not a single PPT is duplicated, and not a single number is duplicated." On August 9, Liu Jie, General Manager of the Shanghai Environment and Energy Exchange, once again took the 2023 Zero Carbon Summit to share the development status of China's carbon market.

Liu Jie introduced that since the official launch of the national carbon market on July 16, 2021, the basic framework of the national carbon market has been basically completed, and the key links have been initially opened. In the future, the national carbon market will take the lead, and other industries will mature one by one. As an important part of the link between the carbon market and the financial market, China's carbon financial market still has huge room for development.

Mature an industry into an industry

Liu Jie introduced that from the history of the development of China's carbon market, in 2008, Shanghai, Beijing and Tianjin respectively established trading venues for environmental rights and interests; Since 2013, seven regional carbon markets in Beijing, Tianjin, Shanghai, Chongqing, Hubei, Guangdong and Shenzhen have been officially put into operation, and since then China's carbon market has formed a physical space and physical operation. Together with later Sichuan and Fujian, there are currently nine regional carbon markets in the country, laying a solid foundation for the launch of a unified national carbon emission market in 2021.

As of May 2023, the trading scale of these nine regional carbon markets reached 1 billion yuan, and the trading volume reached 576 million tons. More than 3,000 companies from more than 20 industries participate in quota trading in regional markets.

Among them, the characteristics of carbon markets in different regions are also different. For example, Guangdong and Hubei have a very high quota issuance, with an annual distribution of 300 million ~ 400 million tons, because they have more emitting enterprises, so the overall quota trading has always been in the lead. The Shanghai carbon market features CCER (National Certified Voluntary Emission Reduction) trading, which accounts for about 40% of the country.

On July 16, 2021, the national carbon market was officially launched, which included 2,162 power generation enterprises at that time, and the annual allowance distribution for two years was about 5 billion tons. Liu Jie believes that in general, the national carbon market has the following four characteristics in the past two years:

First, there are transactions every trading day, and the transactions are concentrated before the fulfillment. For example, the transaction scale in the two months before the performance of the contract at the end of 2021 was sharply expanded, accounting for more than 80% of the transaction scale of the whole year. At the end of December 2023, the national carbon market will carry out its second implementation, and the current market trading volume is gradually expanding, and the price is also rising steadily.

Second, the trading price has increased by nearly 30% from 48 yuan at the opening to 65 yuan now, and the price has risen steadily. Short-term quota trading became the main channel.

Third, half of the more than 2,000 managed companies participated in transactions, but the frequency of transactions was generally low. At present, the turnover rate of the national carbon market is only 2%, compared with the transaction scale and turnover rate of some mature carbon markets.

Fourth, the basic framework of the national carbon market has been basically completed, and key links have been initially opened. Liu Jie said that the next step will be to include electrolytic aluminum, cement, steel and other industries as soon as possible, including the introduction of some investment institutions to increase market activity and liquidity.

刘杰说，地方试点市场是全国碳市场起步的关键点。未来全国碳市场电力先行，其他行业将逐步跟进，“Mature an industry into an industry”。所有行业纳入到全国碳市场以后，整体的配额发放量能够达到65亿~70亿吨，占到国家总体排放量60%左右，纳管企业达到8000家以上。

There is still room for development in the carbon finance market

The carbon finance market is part of the link between the carbon market and the financial market, and it is also a fundamental element of the carbon market. However, China's carbon financial market still has a lot of room for development.

Liu Jie introduced that carbon financial products are roughly divided into three categories:

The first category is trading instruments in the carbon market, including futures, forwards, options, etc. In April last year, the China Securities Regulatory Commission issued an industry standard for carbon financial products, but at present, there are very few carbon financial products in China, a few forward products are trading, and futures and options are still blank. In the mature EU carbon market, 95% of the transaction scale is carbon finance, carbon futures, and derivatives trading.

The second category is financing instruments, including carbon asset pledge business, custody business and bond business. Since last year, Chinese financial institutions have made very good attempts at carbon asset pledge business, more than a dozen banks have made the first order or the first batch of carbon quota CCER pledge business, and this year some financial institutions have developed more financial products.

The third category is carbon finance support tools, including carbon index, carbon fund, carbon insurance, etc.

Liu Jie introduced that in the development of the regional carbon market in the past ten years, Shanghai, Hubei, Guangzhou, Shenzhen and other places have made useful attempts at carbon finance. Some of Shanghai's innovations have been leading the country. For example, Shanghai is the first forward product to adopt central counterparty liquidation, which is also the only legal and compliant carbon forward product in China. In 2021, the Shanghai Environment and Energy Exchange also jointly developed the CSI Shanghai Environmental Exchange Green Stock Index, together with the Shanghai Stock Exchange and China Securities Index Company. Last year, eight public funds publicly sold their ETF products according to the green stock index, raising 16 billion yuan in the first phase, and the transaction scale has reached 80 billion yuan as of last month.

Liu Jie believes that looking forward to the development of carbon finance in China, the following five points deserve attention:

First, we should further improve the coordinated development and complementarity of the regional carbon market and the national carbon market to help Shanghai's goal of carbon peaking.

Second, enrich the types of carbon finance products.

Third, strengthen the investment-oriented role of carbon emission information evaluation.

Fourth, deepen the impact of expanding climate finance pilots. Liu Jie said that last year, 23 climate investment and financing pilots across the country were approved by the Ministry of Ecology and Environment, and Shanghai Pudong New Area was also one of them. At present, the Shanghai Environmental Exchange is supporting the Pudong New Area in the establishment of climate investment and financing standards, climate investment and financing project departments, and the construction of climate investment and financing channels, and helping the Pudong New Area to establish relevant mechanisms.

Fifth, promote the internationalization of the carbon market. Liu Jie believes that the future direction of the carbon market must be internationalization. "The European Energy Exchange is actively working with us and we are preparing to launch the most influential carbon price index in the world." In addition, the new trading mechanism of Article 6.2 and Article 6.4 of the lower limit of the Paris Agreement is being actively negotiated by the Ministry of Ecology and Environment, and the emission reduction trading of global harmonized standards will be launched in the near future.

Liu Jie also revealed that the Shanghai Environmental Exchange and the National Development and Reform Commission and the Ministry of Commerce intend to launch an international green trade service platform, which can help enterprises actively respond to international trade barriers, such as the European Carbon Border Adjustment Mechanism. On the other hand, it is also a step to serve the enterprise well.

Article source: Yicai