China's carbon market: Emissions Trading Scheme to start in June 2021

Update on China’s Emissions Trading Scheme: When trading starts in June – prices for allowances are now expected to trade sub US$1.5/ton – given the oversupply of allowances. Government officials and market participants had previously expected trading to commence in the US$4.6 – US$7.6/ton range. China’s ETS resembles the first phase of the EU ETS where the program started with ample allowances – with further regulatory reform needed to tighten the market. According to analysis by Transitionzero, China has oversupplied its national emissions trading scheme by as much as 1.56 billion allowances for 2019 and 2020. Regulators will have issued around 10.51 billion allowances to coal-fired power plants for the two years under the benchmark-based scheme, compared to an actual need of some 8.94 billion. The surplus is bigger in 2020 (830 mln) than in 2019 (740 mln). For context: Cumulative oversupply over its first two years of operation is on track to be the equivalent of a year’s worth of EU ETS emissions. Replacing China’s coal fleet with zero carbon alternatives could save $1.6 trillion or incur a net-negative abatement cost of US$20/tCO2 according to analysis by TransitionZero. China will have to halve the carbon intensity of its power generation to 350 gCO2/kWh in 2030 from 672 g currently to be on track to meet its 2060 carbon neutral pledge.