China's Carbon Market
The national carbon market officially launched trading on July 16, 2021. As of December 31, 2024, the national carbon market has completed the first and second fulfillment cycles, as well as the quota clearance for the year 2023. It has been operating continuously for 1263 days, with a cumulative quota trading volume of 630 million tons and a cumulative trading volume of 43.033 billion yuan, with an average trading price of 68.3 yuan/ton. The carbon pricing mechanism centered on carbon trading is gradually taking shape, and the national carbon market has become the main policy tool for China to implement the "dual carbon" strategic goals.
1. The pilot trading volume is showing a downward trend
In 2024, the average price of carbon market allowances (CEA) in China will be 91.8 yuan/ton, an increase of 43.4% compared to 2023, 58.0% compared to 2022, and 97.0% compared to 2021.
Against the backdrop of a general decline in global carbon prices, the national carbon market continues to rise in carbon prices for two reasons. Firstly, the market has entered a stage of rapid development, providing stable policy expectations for market participants. Starting from the second half of 2023, multiple important documents will be released one after another, such as the "Interim Regulations on the Management of Carbon Emission Trading" (hereinafter referred to as the "Regulations"), which provide legal basis for the operation and management of the national carbon market. Secondly, the market has released signals of tightening quotas and strengthening penalties, with the scarcity of quotas gradually increasing and penalties for violations becoming increasingly strict, which has become a market consensus. The changes in the benchmark line for quota allocation in the first three performance cycles show a clear trend of tightening year by year. The implementation of the Regulation has increased the punishment for violations.
However, the phenomenon of trading tides still exists, and meeting performance requirements is the main goal. In 2024, the cumulative transaction volume of CEA in the national carbon market reached 189 million tons. The proportion of transaction volume in the four quarters was 5%, 7%, 9%, and 79% respectively. In December, the transaction volume was 75 million tons, accounting for as much as 40% of the annual transaction volume.
Throughout 2024, the pilot carbon market has seen stable carbon prices and a decreasing trend in trading volume. The average carbon price of the 8 pilot carbon markets is 44.1 yuan/ton, a year-on-year decrease of 11.6%, which is about 54% lower than the national average carbon price. There are significant differences in carbon prices among the pilot carbon markets, with most showing a downward trend. In 2024, the total quota trading volume of the 8 pilot carbon markets was 40.5 million tons, a decrease of 25.2% compared to 2023. It is expected that as the industry scope covered by the national carbon market gradually expands, the steel, cement, and aluminum smelting industries will be included in the unified management of the national carbon market, and the emissions covered by the pilot carbon market will gradually decrease and the trading volume will gradually decrease.
2. The carbon market has a significant emission reduction effect
Carbon trading, as a low-cost emission reduction policy tool, has always been a key concern for scholars and policy makers in terms of whether it can effectively reduce greenhouse gas emissions from various industries and enterprises in the implementation region, what mechanisms can be used to achieve emission reduction, and whether there will be other indirect impacts during the implementation process.
In 2024, the Ministry of Ecology and Environment released the "National Carbon Market Development Report (2024)", which evaluated the effectiveness of the national carbon market. The report shows that with the promotion of the national carbon trading mechanism, the emission reduction effect of the power industry is gradually becoming apparent. In 2023, China's thermal power carbon emission intensity (CO2 emissions per unit of thermal power generation) will decrease by 2.38% compared to 2018, and the electricity carbon emission intensity (CO2 emissions per unit of power generation) will decrease by 8.78% compared to 2018. The implementation of carbon trading has cumulatively reduced 250 million tons of CO2 emissions in the power industry. Meanwhile, carbon trading has promoted the structural transformation of China's thermal power industry.
A large number of studies evaluating the emission reduction effects of China's pilot carbon market have confirmed the effectiveness of the pilot carbon market in reducing emissions. Industry level data reveals that there are differences in emission reduction effects among different industries, with the chemical and steel industries showing more pronounced emission reduction effects. Due to differences in market factors and mechanism design, the emission reduction effects vary in different regions. Beijing has the strongest emission reduction effect, followed by Shanghai and Shenzhen, while Guangdong and Hubei are relatively weaker.