The emissions market in Hubei attracts more investors than its rival emissions schemes

The emissions market in the central province of Hubei has attracted far more investors than any of its rival emissions schemes, due to expectations for a surge in carbon permit prices.

In the first 12 trading days after the Hubei carbon market opened on April 2, 1.6 million permits changed hands, compared to a total of just 66,000 permits sold on China’s five other pilot carbon markets in the same period.

China has set up the pilot markets to build experience in emissions trading before it launches a national market later in the decade, as its key policy step to reduce emissions of climate-changing greenhouse gases.

Opening price levels in the carbon markets have been directed by local governments. Traders have seen significant upside potential in markets where starting prices were set low. But trading has been less enthusiastic in regions such as the southern province of Guangdong and the capital, Beijing, where prices started at 60 yuan and 50 yuan respectively.

In Hubei, the government set a minimum price of 20 yuan for emission permits, the lowest in China and a mere third of levels in Guangdong. The low starting point drove expectations of a steep climb in prices. So far spot permits have risen by a quarter, to 25 yuan.

Also, many speculators are attracted to Hubei because it sets no capital threshold to bar potential traders, Li Chen said, technical director with trading house Treasure Carbon. Furthermore, Li said most of the almost 140 companies with compliance requirements under the Hubei trading scheme had taken a wait-and-see approach so far, though some of them had bought small parcels of fewer than 100 permits each.