An oversupply of emissions trading credits in China by more than 1.5 billion tonnes of carbon dioxide will likely cap carbon prices in the country, TransitionZero carbon analyst Matt Gray told Fastmarkets in an interview.
China kicked off an emissions trading scheme (ETS) on July 16, with the first phase of its carbon experiment centered on thermal coal-fired power plants. Other heavy industries such as steel, concrete and petrochemicals are likely to follow very soon.
"We found that China's ETS was oversupplied by 1.56 billion tonnes of CO2 in 2019-2020, which means it is unlikely that trading will result in a high carbon price," Gray said.
There is a large difference between explicit and implicit carbon prices in China and Europe, according to Gray.
"Carbon prices in the European Union [are] already trading at ?,?60 [$69.58] per tonne, while China [they are] trading at $7 per tonne," Gray said.
This is because China is offering generous free allocations of carbon credits,...