Shenzhen to hold first-ever auction of carbon permits

Speculators say minimum price was 'unfair' as it was 50pc less than average price of permits

PUBLISHED : Wednesday, 28 May, 2014, 12:50pm
UPDATED : Wednesday, 28 May, 2014, 12:50pm

Shenzhen will auction 200,000 carbon permits to help the city’s big emitters meet their targets under an emissions trading scheme.

But speculators who had bought permits in the market in the hope of selling them to emitters at a profit, said the minimum auction price was too low and could scupper their resale plans.

China, the world’s biggest emitter of climate-changing greenhouse gases, has launched six regional carbon markets as a low-cost approach to slowing the rapid growth in emissions.

The Shenzhen auction, the first such sale in the city, will come on June 6, with permits sold at a minimum price of 35.43 yuan (HK$44.47), according to a statement by the China Emissions Exchange, which runs the market.

“The auctioned permits can only be used for compliance, they cannot be traded in the market,” it said.

The fresh supply, taken from a reserve set aside by the city government last year, will help companies meet their carbon reduction targets under the scheme.

But speculators complained the minimum price was unfair as it was half the average price of permits since the market launched in June last year.

“This is toxic for individual investors. There is no fairness, justice or transparency,” said a trader, who declined to be named.

The Shenzhen government was not immediately available for comment.

The note from the China Emissions Exchange said the 200,000 permits would not be enough to cover the total shortfall at companies.

Individual emitters will not be allowed to buy more than 15 per cent of their shortfall in the auction, meaning they would still need to buy more in the secondary market, which traded at 74.99 yuan on Tuesday.

Shenzhen, the smallest of China’s six pilot markets, issued around 33 million carbon permits for last year. Some 10 per cent were set aside in government reserves, with the rest handed out to emitters for free.

Around three million of the permits have since been cancelled as the government adjusted allocation levels based on reported production data after the year ended.

The June auction will be limited to the nearly 200 companies that had their allocation levels adjusted.

The 635 companies covered by the scheme have until June 30 to hand over permits to the government to cover for their last year emissions.

Most of China’s six carbon markets remain illiquid as many companies with a permit surplus are reluctant to sell as they are concerned they may need them later.