Sizing Up China’s Carbon Markets

While China is the largest carbon emitter in the world, the aggregate trading volume of China’s existing carbon markets is only a small fraction of the EU and US markets (including California and the Regional Greenhouse Gas Initiative). The EU has a sizable lead with trading volumes almost 100 times that of China’s, even after seven years of operation, with China’s regional pilots dating back to 2013.

Source: Sinocarbon, Carbon Pulse, and ICAP

China’s regional markets show distinct variations across regions including in trading volume, the size of the market, and the average prices for carbon. Guangdong has the largest trading volume, but Beijing has the highest average price and number of participating entities. The main reasons that Guangdong boasts the largest trading volume are the high-carbon industrial makeup of the province, the participation of foreign and institutional investors, and being the first pilot to successfully auction allowances.

Source: Sinocarbon and Refinitiv

When China’s national carbon exchange comes on line in late 2020—just trading in one sector, power—it will be larger than the US and the EU markets combined. As it expands to other major polluting sectors, it has the potential to drive carbon pricing globally because of its sheer size.

Sources: S&P Global, C2ES

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