Prices of carbon allowances (CEA) in China’s National Emissions Trading Scheme (CNEST) reached on Tuesday their highest level since July 16, 2021 when the scheme became fully operational. The opening price on the first day of trading was 48 yuan/ton (around €7/tone).

The CEAs traded briefly at 72 yuan/ton(around €9/tone) on Tuesday before closing at €70,07 yuan/ton. The current level is significantly lower than the European equivalent. However, the CEAs have now surpassed prices in South Korea’s national trading scheme, “the most mature compliance market in Asia-Pacific” according to SPP Global.

China’s carbon market is the largest in the world and three times bigger than the EU ETS in terms of regulated emissions. However, from its beginning, CNEST has seen reduced trading volumes and low prices. Based on data provided by the Shanghai Environment and Energy Exchange, the cumulative transactions volume of carbon emissions allowances, in the first two years, reached 239,9 million tonnes while the market value stood at 11,03 billion yuan (around €1,4 billion).

Trading activity has even declined in the second compliance year, according to an article by the South China Morning Post, a paper owned by the Chinese tech giant Alibaba. “From July 2022 to July 14 2023 only 45.9 million tonnes of carbon allowances exchanged hands with a corresponding market value of 2.54 billion yuan”.

However, in the past month, the price for CEAs and trading volumes have been rising constantly.  According to Bloomberg, quoting people familiar with the matter, “Beijing has told local authorities to ensure 95% of the annual target is met by November 15 to avoid unwelcome volatility if firms take a last-minute approach to getting cover for their emissions.” Over 2000 entities need to surrender allowances by the end of this year for emissions from both 2021 and 2022.

Data revealed by China Daily show that the government’s concerns regarding last-minute buying are justified. “84.6% of transactions occur two months before the compliance deadline, much higher than the EU ETS’s 42.5 percent.”

Furthermore, higher emissions also could have contributed to increased market activity. Based on an analysis made by Carbon Brief, “China’s CO2 emissions increased an estimated 10% year-on-year in the second quarter of 2023, rebounding approximately 1% above the record levels of 2021” amid reduced hydropower caused by droughts and increased activity following Covid-19 lockdowns.