China will set up an international carbon emission trading center at the Hainan Free Trade Port (FTP), as reported by China Daily on March 22. The trading center will provide a capital support platform for various kinds of carbon products to promote emission reduction and energy conservation. Establishing the international carbon market is a key path to China’s carbon neutrality target for 2060 and an essential step to developing a market-oriented ecological compensation mechanism, according to officials at a meeting about preparations for the trading center. The trading center is expected to come into operation in 2H22.

China granted Hainan Province the FTP status in June 2020 to transform it into an offshore trade and finance center. The island province’s new role as an international carbon trading center aligns with China’s efforts to expand its carbon trading system and link it to the global markets. The country carried out its national emission trading scheme (ETS) in July 2021, a market where enterprises granted carbon emissions quotas can trade their allowances. The market ranks first in the world in terms of transaction volume, as it comprises 2,225 major power generation firms of China. However, the ETS is still under development. The average price of carbon emission is only EUD6.45 (USD7.09) per ton as of last September, compared to that of EUD60 (USD65.92) per ton in the EU’s carbon market. In addition, the market is considered as lacking in liquidity due to undiversified participants. Last December, China disclosed plans to include other carbon-intensive businesses in the ETS this year, such as non-ferrous metal and building materials sectors.

Sources:

http://english.www.gov.cn/news/topnews/202203/22/content_WS6239224cc6d02e5335328186.html

https://www.reuters.com/world/china/chinas-hainan-province-eyes-international-carbon-trading-platform-2021-09-02/

https://asia.nikkei.com/Spotlight/Caixin/In-depth-China-s-huge-carbon-market-off-to-sputtering-start