Liu Youbin, spokesman of China's Ministry of ecology and environment, announced at a press conference held on the 26th that the online trading of the national carbon market is to be launched by the end of June.

Given that China's carbon market covers more than 4 billion tons of emissions, China will become the largest carbon market covering greenhouse gas emissions in the world.

01

Why does China want to do carbon trading?

China's construction of a carbon trading system will form a signal to price carbon emissions within the whole society, lay a solid foundation for the low-carbon transformation of the whole society, and realize the commitment made by the Chinese government to the international community to "strive to reach the peak of carbon by 2030 and achieve carbon neutrality by 2060".

So why price carbon emissions? This also starts with the international situation.

In recent years, with the increasing attention to global warming, the issue of climate change has gradually evolved into a political issue. Europe has repeatedly raised the issue of "carbon boundary". Carbon emission intensive products of various countries are likely to be subject to carbon tariffs in international trade in the future, which directly leads more and more countries and even enterprises to consider measures to reduce tariff risk, and China is no exception.

The policies of various countries to control greenhouse gas emissions are generally divided into three categories: command control, economic stimulus, persuasion and encouragement. Among them, economic stimulus measures are favored by all countries because of their good flexibility and continuous improvement.

Among the means of economic stimulus, the most important is the carbon pricing mechanism. Based on the principle of "polluter pays", if you want to emit CO2 and other greenhouse gases, you should first obtain the right to carbon emission, and then pay for this right. This process is called carbon pricing.

Carbon pricing mechanisms are generally divided into two types. One is the mandatory means of the government, which is to levy a carbon tax; The other is to establish a carbon emission trading system through market means.

These two mechanisms are essentially different in emission reduction mechanism. The following introduction is from Huabao Securities:

Carbon tax refers to the carbon price specified by the government and the final emission level determined by the market, so the final emission is uncertain; Carbon emission trading system means that the government determines the final emission level and the market determines the carbon price, so the carbon price is uncertain.

It is precisely because of this difference that the two means have different characteristics. The introduction of carbon tax is more suitable for controlling small and micro emissions, while the carbon emission trading system is suitable for controlling enterprises or industries with large emissions. These two policies can be combined.

China has chosen to adopt a carbon pricing mechanism to realize its commitment to carbon emissions and carbon neutrality. As of April 2020, there are 31 parties to the international climate agreement that implement the carbon emission trading policy in the world, and the rest include the European Union, South Korea, California, etc. There are 30 Contracting States implementing carbon tax policies, mainly located in northern Europe, Japan and Canada.

Targets of carbon emission reduction and carbon neutralization commitments of various countries and regions:

02

What is a carbon trading market? How does it work?

Carbon emission trading market refers to a market that publicly trades carbon emission rights as an asset object.

In other words, the core of carbon trading is to "cost" the environment, turn the environment into a paid factor of production with the help of market forces, and trade the valuable asset of carbon emission rights in the market as a commodity.

As for the operation mechanism of the carbon market, firstly, the government determines the overall emission reduction target and adopts the quota system. First, the initial carbon emission rights are allocated to the enterprises included in the trading system in the primary market, and the enterprises can freely trade these carbon emission rights in the secondary market.

Secondly, enterprises with economic incentives and relatively low emission reduction costs will take the lead in emission reduction, and sell excess carbon emission rights to enterprises with relatively high emission reduction costs to obtain additional benefits. Enterprises with higher emission reduction costs reduce the cost of meeting carbon emission standards by purchasing carbon emission rights.

According to the analysis of Huabao securities, the price of carbon emission right in effective carbon market is the marginal emission reduction cost of enterprises. In the micro decision-making of enterprises, it is mainly to compare the cost of carbon emission reduction, the cost of excess carbon emission and the cost of purchasing carbon quotas with the benefits brought by excess emission production, and make corresponding decisions.

03

What is the domestic and international pattern of carbon trading?

From a global perspective, a global unified carbon trading market has not yet been formed.

The EU carbon market is the leader of the carbon trading system and has the largest carbon trading market in the world. According to Rover's assessment of global carbon trading volume and carbon price, the carbon trading volume of the EU carbon trading system has reached about 169 billion euros, accounting for 87% of the global carbon market share.

In North America, many regional carbon trading systems coexist. In Asia, South Korea is the first country to launch a national unified carbon trading market, and has become the second largest national carbon market in the world. In Oceania, Australia, which tried the carbon trading market earlier, has basically withdrawn from the carbon trading stage, leaving only New Zealand. The country's carbon emission trading system is developing steadily.

As far as China is concerned, it is still in the pilot stage of carbon emission trading. Once the national carbon trading system is launched, it will enter the market stage of carbon emission trading.

At present, eight regions in China are carrying out carbon emission trading pilot projects, including Beijing, Tianjin, Shanghai, Chongqing, Hubei, Guangdong, Shenzhen and Fujian.

In terms of price, at present, the global carbon emission price is on the rise, and the carbon price in each carbon market is quite different. According to Huabao securities, the EU carbon market has the highest carbon price and China's pilot carbon trading market has the lowest price.

According to Huabao securities, the historical highest point of China's pilot carbon price is 122.97 yuan / ton (Shenzhen) and the lowest point is 1 yuan / ton (Chongqing); The highest spot carbon price of EU EUA carbon quota is 47.91 euros / ton (equivalent to about 380 yuan / ton), and the lowest point is 2.68 euros / ton (equivalent to about 22 yuan / ton). As of April 29, the carbon price of China's carbon pilot was between 5.53-42.02 yuan / ton (of which the carbon price in Shenzhen carbon market was the lowest, 6.44 yuan / ton, and Beijing was the highest, 47.6 yuan / ton). On the same day, the spot settlement price of EU EUA carbon quota was 47.91 euros / ton (equivalent to about 380 yuan / ton), which was 9-68 times that of China's carbon pilot.

04

What is the potential of China's carbon market?

"The national unified carbon market will bring 100 billion market scale," Lu Rixin, a new energy analyst at Orient Securities, estimated.

In terms of carbon emissions trading volume, Lu Rixin believes that China's current total carbon emissions exceed 10 billion tons / year. According to the calculation of the proportion of 30% - 40% included in the carbon trading market in 2025, the scale of China's carbon emission quota trading market will be more than 3 billion tons in the future, which is equivalent to the total emission level of the EU.

In terms of carbon emission trading volume, Lu Rixin believes that based on the research results of 2020 China carbon price survey jointly released by China Carbon Forum and ICF international consulting company, the carbon price in the national carbon emission trading system is expected to rise steadily to 71 yuan / ton in 2025, and the total market value of the national carbon emission quota trading market will reach 284 billion yuan.

According to the current design scale prediction, Guorong Securities believes that the market value of the national carbon market may reach about 150 billion yuan. If considering the trading volume of derivatives such as carbon futures, the scale can reach about 600 billion yuan.

Among them, in terms of forward trading of carbon quotas, according to Liu Jie, by the end of 2020, the cumulative forward trading volume of carbon quotas in Shanghai had reached 4.33 million tons, and there was a stable growth almost every year.

Ji Xiaoyun, a researcher at Green Dahua futures, believes that according to the standard that the trading volume of EU carbon futures is 30 times that of spot, the trading volume of China's carbon futures may reach about 400 billion tons. Based on the average price of 50 yuan / ton in the current pilot carbon market, the annual trading volume of carbon futures will reach 20 trillion yuan, which is roughly equivalent to rubber, iron ore, copper and other varieties.

At present, eight regions in China are carrying out carbon emission trading pilot projects. As of November 2020, the cumulative quota trading volume of each pilot carbon market is about 430 million tons of carbon dioxide equivalent, with a cumulative turnover of nearly 10 billion yuan.

05

Are participating enterprises profitable?

For enterprises directly involved in carbon emission trading, Lu Rixin estimated that: calculated with the upper limit of 5% offset quota, the annual emission reduction gap of CCER (national certified voluntary emission reduction) project is about 150 million tons, and the new energy enterprises and Carbon Asset Development and management enterprises participating in the development will make profits.

Specifically, based on the CCER price of 15 yuan / ton, the gross profit per unit power generation of wind power, photovoltaic and biomass will increase by 4.8%, 2.5% and 6.4%, with biomass being the most significant.

For the carbon verification organization, Lu Rixin estimated that the enterprise's performance needs to be audited through its own carbon inventory and the carbon verification of a third-party organization, and the work cost of the enterprise's own carbon inventory is 120000-180000 yuan / time. According to the bidding announcement of carbon verification released by Beijing Finance Bureau, the cost of a single carbon verification is about 30000 yuan / time. National carbon market