China has loosened the rules governing its carbon market after prices rose to a record, to make it easier for power generators to meet rising winter demand.
Coal-fired power plants, which are due to buy carbon permits to meet emissions targets by the end of the year, were informed by the environment ministry that they’ll be allowed to borrow more from future allowances, according to people familiar with the matter. The plan will swell supply and help eliminate the threat of electricity shortages during the colder weather, said the people, who requested anonymity when discussing a private notice from the ministry.
Beijing has moved aggressively to forestall another round of economy-crippling power crunches by raising supplies of coal, its mainstay fuel, to record levels. But concerns persist that periods of peak demand could still overwhelm the grid in some places. Power-thirsty aluminum smelters in Yunnan province, for example, plan to cut output again this winter as their usual supplies of hydropower wane during the dry season.
The Ministry of Ecology and Environment didn’t respond to calls seeking comment.
Certain power plants designated by local authorities will be allowed to borrow from carbon quotas in 2024 to cover 70% of their expected shortfall this year, from 50% currently, according to the notice from the ministry. The government will also widen the number of utilities allowed to front-load their new quotas.
Carbon prices on the national market have fallen from all-time highs in recent days as traders assess their access to the additional supply.
“The bailout is a one-time measure that’s only for the current compliance period,” which will limit its impact, said Song Yutong, a carbon analyst with the London Stock Exchange Group.
Read More: China’s Polluters Take Steps to Meet EU’s Carbon Tax Challenge
Still, the new policies indicate the government’s continued reluctance to raise carbon costs for fear of stressing its electricity generators or causing mishaps with supply because of its over-reliance on dirty coal. That’s creating a misalignment in pricing that could prove costly as emissions become an increasingly important factor in global trade.
While a gradual tightening in allowances has pushed prices higher since the market’s launch in 2021, emissions in China trade at just a fraction of the cost in the European Union, which is due to impose import taxes on carbon from 2026.
The Week’s Diary
(All times Beijing unless noted.)
Wednesday, Nov. 1:
- Caixin’s China factory PMI for October, 09:45
- CCTD’s weekly online briefing on Chinese coal, 15:00
- SNEC Energy Storage/Hydrogen conference in Shanghai, day 2
- EARNINGS BRIEFINGS: Yangtze Power (10:00)
Thursday, Nov. 2:
- SNEC Energy Storage/Hydrogen conference in Shanghai, day 3
Friday, Nov. 3:
- Caixin’s China services & composite PMIs for October, 09:45
- China weekly iron ore port stockpiles
- Shanghai exchange weekly commodities inventory, ~15:30
- SNEC Energy Storage/Hydrogen conference in Shanghai, day 4
- EARNINGS BRIEFINGS: Shenhua (16:00)
Saturday, Nov. 4
- Australia’s Prime Minister Anthony Albanese visits China, through Nov. 7
Sunday, Nov. 5
- China International Import Expo in Shanghai, through Nov. 10
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