The main price drivers in China’s national ETS currently point downward. The issuance and trading of new offset credits, the ‘soft’ start of scope expansion to three carbon-intensive manufacturing sectors, pre-allocation of 2024 allowances and the long lead time to the 2024 compliance deadline (31 December 2025), all make for a bearish price trend going forward. Updated banking/borrowing rules will likely increase selling pressure in the coming months, keeping prices low in the medium term. Meanwhile, the US-China trade standoff is likely to weigh on market sentiment.
Prices of China Emission Allowances (CEAs) have been on a downward trend. After reaching highs over CNY 100/t (EUR 12/t) in late 2024, CEAs have not closed above CNY 97/t (EUR 11.7/t) in 2025. On 22 April, they dropped to CNY 76.85/t (EUR 9.3/t) – their lowest level since March 2024. This trend is the opposite of last year, when CEA prices were on an upswing at this time – see Figure 1 – due to expectations of more stringent benchmarks for coal plants.
Although market participants have expected additional supply of compliance units in the form of offsets (called China Certified Emission Reductions or CCERs) since the national CCER scheme was formally relaunched in January 2024, trading of the offset units has been muted on the China Beijing Green Exchange. In early March, however, nine new Chinese offset projects finally issued the first batch of around 9.5 million CCERs, which were then put into circulation from 7 March – see our analysis of this here. Covered entities in the national ETS may use CCERs to meet up to 5% of their compliance obligations, so the new supply of these offset credits theoretically reduces demand for compliance units overall, which in turn brings down CEA prices – but given the tiny volumes in question, the price effect of newfound CCER availability is small. See Figure 2 below for price comparison of CEAs and CCERs.
Another factor increasing the expected supply/demand balance for compliance units in China’s carbon market is the way regulators will expand its scope: on 26 March, China’s Ministry of Ecology and Environment (MEE) issued the official work plan for including emissions from manufacturing of cement, steel and electrolytic aluminium. This plan clarifies that newly-covered entities in these sectors will receive a number of allowances equal to their actual verified emissions per unit of output, meaning their compliance to the ETS will not require any carbon intensity reduction for that year. While the work plan specifies that the benchmarking approach will be applied to 2025-2026 compliance years, gradually tightening benchmarks will be applied only from 2027. As our previous analyst update predicted, this “soft start” to the ETS scope expansion contributes to the bearish CEA price trend.
A further bearish driver is the pre-allocation to power sector emitters, who are already covered by the ETS and whose benchmarks are tightening: pre-allocation took place shortly before last Sunday (20 April). As per the 2023-2024 allocation plan for the power sector, 70% of firms’ 2023 verified emissions were pre-allocated. Based on the MEE’s official announcement on 3 January related to 2023 verified emissions, we estimate that amount to be huge: with roughly 3.6 – 3.7 billion allowances. With that much physical supply injected into the national market, it is not surprising that CEA prices dropped more than 8% within just a week. Moreover, the 2024 compliance deadline is still over eight months away – this puts additional downward pressure on CEA prices given that it lessens the end-of-year scramble for allowances ahead of the compliance deadline that typically pushes up prices. Last year’s highest CEA price, for example, occurred in November ahead of the 2024 compliance deadline for 2021-2022 emissions.
The bearish price impact of pre-allocation was overshadowed last year by the aforementioned release of more stringent rules for the national scheme that made for higher demand for CEAs. Also, pre-allocation took place slightly later in previous years – combined, these factors made for a price trajectory so bullish that the bearish effect of pre-allocation was not discernable.
As in most markets, the immediate shock of increasing tariff threats between the US and China have added to uncertainty – in the case of China’s ETS, this has had a slight bearish effect on market sentiment. Textbox 1 below provides a brief timeline on the escalating trade conflict developments.
| Date | Action |
|---|---|
| 1 February | Trump announces 10% additional tariff on Chinese goods through an Executive Order based on the International Emergency Economic Powers Act |
| 4 February | 30-day pause on Trump’s tariffs on Chinese goods which takes effect |
| 10 February | Tariffs on selected US imports (15% on coal and liquefied natural gas and 10% on crude oil, agricultural machinery, and large-engine cars) that were announced the week prior enter into force in China |
| 4 March | Trump’s original tariffs on Chinese goods resume, China sets additional tariffs on products including chicken, wheat, corn, and cotton |
| 8 April | Trump boosts 104% tax on Chinese goods |
| 9 April | China boosts tariffs on US goods to 84% |
| 10 April | Trump raises tariffs on Chinese goods to 145% |
| 11 April | China raises tariffs on US goods to 125% |
Market sentiment on the back of uncertainty may be the cause for further short
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