Experts suggest the financialization of the carbon market: full consideration of risks and impacts

“The development of carbon market financial derivatives must fully consider the risks brought by the financialization of the carbon market and the impact on the development of the carbon market.” At the 9th National Annual Conference on Low-Carbon Development Management, Director of the Institute of Energy, Environment and Economics, Tsinghua University Zhang Xiliang said.

In September 2020, China announced that it “strives to reach the peak of carbon dioxide emissions by 2030, and strive to achieve carbon neutrality by 2060.” “Carbon peak” and “carbon neutral” have become “hot words” in the energy sector. From the 15th to the 16th, Taiyuan, Shanxi, the 9th National Annual Conference on Low-Carbon Development Management was held here. Experts, scholars, and business executives discussed low-carbon emissions.

According to Zhang Xiliang, 61 countries and regions currently adopt or plan to adopt carbon pricing tools, of which 31 choose carbon markets and 30 choose carbon taxes. “The carbon market is a quantity policy. Given the total amount of emissions, the market determines the price of carbon; a carbon tax is a price policy. Given a tax rate, the market determines the amount of emission reduction. At this stage, China chooses the carbon market, and it may be combined with a carbon tax in the future.”

In 2011, China launched seven carbon trading pilots in Beijing, Shanghai, Tianjin, Chongqing, Hubei, Guangdong and Shenzhen; in 2013, the Shanghai carbon emissions trading market launched trading; in 2016, Fujian became the eighth carbon trading pilot; in 2017 , The national carbon market construction process started in phases; starting from January 1, 2021, the first compliance cycle of the national carbon market officially started.

“More than 70% of energy-related carbon emissions come from industrial sectors such as energy and manufacturing, more than 70% of electricity is used in the industrial sector, and about 50% of coal is used in the power generation and heating sector.” Zhang Xiliang introduced that the national carbon market is based on the power industry. As a breakthrough, the first batch of 2,225 key emission units in the power generation industry were included in the national carbon emission rights registration system.

For the first time, China has consolidated the responsibility for greenhouse gas control and emissions from the national level to enterprises, and promoted the upgrading of industrial technology through the market force mechanism. Eight energy-intensive industries, including petrochemicals, chemicals, building materials, steel, non-ferrous metals, papermaking, electric power, and civil aviation, will gradually be included in the carbon market coverage during the “14th Five-Year Plan” period.

At present, China’s urbanization and industrialization process continues. As the world’s largest consumer of mineral resources, high total emissions coexist with the tight target time limit, and the energy growth needs of economic development coexist with the pressure to reduce carbon emissions. According to data, as of the end of 2020, the cumulative trading volume of carbon emission allowances in the eight carbon trading pilots was only 445 million tons of carbon dioxide equivalent, with a turnover of 10.4 billion yuan.

Zhang Xiliang suggested that based on national conditions such as emission reduction commitments, emission structure, and market conditions, the design of the national carbon market should be improved in stages, and the national carbon market total set and the national total carbon emission control system should be organically combined to give full play to the main body of the carbon market. Research on the introduction of auctions to allocate part of carbon emissions, and carry out research on the coordinated implementation of two policy tools, carbon market and carbon tax.

Zhang Xiliang suggested that based on national conditions such as emission reduction commitments, emission structure, and market conditions, the design of the national carbon market should be improved in stages, and the national carbon market total set and the national total carbon emission control system should be organically combined to give full play to the main body of the carbon market. Research on the introduction of auctions to allocate part of carbon emissions, and carry out research on the coordinated implementation of two policy tools, carbon market and carbon tax.

At present, carbon trading pilot areas and financial institutions have successively developed financial products such as carbon bonds, carbon options, and carbon funds. Zhang Xiliang said that the nature of the carbon market is a policy tool aimed at reducing carbon emissions, and the nature of the carbon market must be dealt with. The relationship between attributes and financial attributes, “The development of financial derivatives in the carbon market should be based on serving carbon emission reduction.”