① European carbon prices have been falling one after another, hitting a new low since 2022; ② Domestic CCER has restarted, and the industry is expected to file and issue Q3 documents as soon as possible this year; ③ CCER prospects are facing controversy. They are improving in the long term, but they may fall short of expectations in the short term.
Finance Association, Feb. 23 (Reporter Luo Yichen) Thanks to the introduction of a series of policies, the domestic CCER (National Certified Voluntary Emission Reduction) restart is getting closer and closer, allowing various institutions to see “benefits.” At the same time, news of a sharp drop in carbon emission rights (EUA) trading prices came from Europe, which is a leader in carbon trading. The latest closing price was 50.41 euros/ton, a new low since 2022, and is close to falling short from the peak period.
Affected by this, domestic investors are beginning to worry: can market demand meet expectations after CCER is restarted?
Financial news agency reporters from many sources learned that in the long run, in the context of carbon neutrality, there is a high degree of certainty that CCER transaction prices will rise steadily. Zhang Juntao, Secretary General of the Carbon Neutrality Special Committee of the China Energy Conservation Association, was interviewed and said, “The future carbon price is only a reasonable range of around 200 yuan/yuan.” However, in the short term, due to the looser allocation of quotas, the actual demand for CCER may be lower than expected and will need to be further tightened on the policy side.
Following the official announcement of the CCER restart in January, the relevant participants are currently in the process of applying for the project. The Financial Services Association reporter learned from Yueyang Linshi (600963.SH) and Dongzhu Ecology (603359.SH) as investors that the company is proceeding with the project declaration, but there is still uncertainty about the approval period. It is generally expected to be 6 to 12 months. The results of the filing and issuance can be seen as soon as Q3 this year. At that time, the product will go online for trading on the Beijing Green Stock Exchange.
Most institutions and industry figures are optimistic about the CCER restart prospects. According to Zhang Juntao, “China's demand for carbon trading is very large. To achieve the long-term goal of carbon neutrality, demand must be greater than supply in the carbon trading market. We are optimistic that domestic carbon prices will rise. It is expected that carbon prices will gradually rise to around 200 yuan/ton before reaching a reasonable range.” According to data, in January of this year, the average price of CCER stock transactions in China was at the level of 70-75 yuan/ton.
As for how he views the decline in carbon prices in Europe, Zhang Juntao said in an interview that the drop in carbon prices in Europe is affected by many aspects, the Russian-Ukrainian conflict affects the recovery of the European economy, and the cash flow of carbon market investors is affected to a certain extent. This will affect the enthusiasm of carbon market investment decision makers to buy carbon quotas. At the same time, it will also cause the phenomenon of selling carbon emission quotas. The impact on the domestic market is mainly concentrated on the emission cost side of enterprises. The pressure on exporters will ease, but there will be no obvious impact on the domestic CCER market.
According to reports, with only the power industry participating in carbon trading, China has 4.5 to 5.1 billion tons of carbon emission quotas to be paid out every year. Based on a 5% settlement ratio, CCER's demand space in the mandatory emission reduction market is about 225 to 255 million tons. Furthermore, according to agency forecasts, if participants cover the seven key emission industries, the total carbon quota covered by the carbon market will expand to 8-11 billion tons. Based on this calculation, the maximum tradable limit for CCER is 400-550 million tons.
However, in actual operation, the offsetting mechanism may give CCER the demand space far below the theoretical value. Tang Huiyi, a futures analyst at CITIC Construction Investment, said in the research report that when the contract is actually executed, most emission control units with surplus quotas will not actively participate in CCER transactions. Therefore, the actual demand space for CCER in the forced emission reduction market is lower than the theoretical value. The looser the quota distribution, the smaller its actual demand space.
“Considering that no new industries are being included in the market, we estimate the actual demand for CCER in the national carbon market in 2024 will be around 100 million tons. Notably, after the end of the second compliance period, the overall market quota surplus exceeded 300 million tons, which meant that CCER as a quota replacement was not 'short of supply' as the market imagined.” Tang Huiyi said.
According to reports, CCER is a carbon credit. In addition to the forced emission reduction market mentioned above, there is also a voluntary emission reduction market, and European policy changes have directly impacted the latter. At the beginning of this year, the European Union passed a law prohibiting merchants from promoting so-called “zero carbon” and “carbon neutrality.” For a long time, some buyers participated in voluntary emission reduction transactions for commercial promotion purposes. The EU's move caused buyers' confidence to be undermined, carbon prices also dropped sharply, and the voluntary emission reduction market is likely to face a period of deep adjustment.