Last year saw China’s carbon market reach several milestones with prices moving higher in response to demand and key heavy industries lined up for inclusion. But there are still lingering concerns about an oversupply of allowances and the expiration of permits issues in previous periods.
China’s compliance carbon market is the largest globally by emissions coverage, encompassing 5.24 billion metric tons of CO2 and representing over 40% of the nation’s carbon emissions.
February set the tone for the year when the State Council adopted emissions trading scheme (ETS) regulations. Yan Qin, Principal Analyst at ClearBlue Markets shared with Carbon Herald the legislation was one of the main reasons behind the positive developments: “This new legislation lifted the ETS in the policy hierarchy compared with the previous ministry-level management rules and strengthened non-compliance penalty. The new regulation also contained an article about the inclusion of civil aviation to national ETS in the future which hints at China’s responses to CORSIA and the likely expansion of EU ETS to international aviation in 2027.”
Prices were seen reaching averaged 98 RMB per ton ($13.37) in 2024, up around 50% from 2023’s level of 68.35 RMB. According to Qin trading had a “tidal pattern” with the majority of trades happening in the final months of the year due to a delayed allowance distribution in early Noevember.
Cement, steel and aluminium are also expected to be included in the ETS soon, with supply projected to reach 8 billion tons. Adding the three new industries would bring the exchange to cover approximately 65% of all greenhouse gas emitted in the country, accelerating China’s pace for peaking CO2 emissions by 2030 and reaching carbon neutrality by 2060.
Restarting the voluntary CCER market
2024 also marked the relaunch of the voluntary China Certified Emission Reduction (CCER) market. Unlike other countries and regions here the CCER and the ETS constitute the country’s carbon market system together.
The Ministry of Ecology and Environment announced on July 30 that it would begin consultations on methodologies for issuing carbon credits to projects utilizing coal mine gas and energy-efficient highway tunnel lighting.
Relevant: China Unveils New Methodologies For Its Voluntary Carbon Market
According to Qin there haven’t been any new offsets generated by the CCER with 60 projects registering for participation but received intense scrutiny from both the regulator and the public.
“In my view, this strict stance by the Chinese regulator shows that they put great emphasis on the quality of тhe offsets and integrity of the new national voluntary scheme, especially against the backdrop of negative media reports of global voluntary carbon market in 2024,” says Qin.
She also points out that the slow progress in China’s voluntary carbon market in 2024 is partly due to overlapping energy and carbon policies. In 2023, the Green Electricity Certificate scheme was updated, and new methodologies for renewable projects were introduced. However, regulators took time to align these policies, leading to a September 2024 rule that prevents double benefits from green certificates and CCERs.
While new CCERs are expected from mid-2024 after projects re-register, their supply will remain limited due to the small scope of current methodologies. With rising emissions and high demand in the national carbon market, CCER prices have surged to 80 RMB in 2024 and are expected to stay high in 2025.
2025 China carbon market outlook
When it comes to the outlook for China’s carbon market this year Yan Qin is quite bullish, citing the tightening of benchmarks for 2024 allocation. But there are caveats.
“…the extent of price rise could be less pronounced than in 2024 as there is still cumulative surplus in the market and initial allocation for the new industry sectors is likely to be quite generous. I expect an average price of 100 RMB/t in 2025, with prices likely to pick up in the final two months ahead of the compliance deadline, potentially reaching 120 RMB by year end.
Trading volumes will pick up further in 2025, mainly driven by the new rules on carrying over allowances which link the amount of banking to transacted volumes. This intends to force the participants holding the surplus allowances to sell some back to the market and reduce hoarding whilst improving market liquidity. In 2024, trading volumes concentrated in November and December due to the delayed handing out of allowances. This would change in 2025 as the pre-allocation will already take place in April, helping to spread out trading activities more evenly throughout the year,” she explains.
If you’re interested in learning more about the trends shaping China’s compliance carbon market, as well as CBAM’s impact on international trade you can join a webinar organzied by ClearBlue Markets on January 22 through this link.
Read more: China To Add Steel, Cement and Aluminum To Its Carbon Market
