On July 16th, China's national carbon market officially began. Throughout the first week of the trading, there is a slight increase in terms of pricing. The closing price on July 23rd has increased by RMB 8.97 from the opening price of RMB 48 per ton.
However, there are few possible problems that might be encountered by the national carbon market:
1. Excessive allowances lead to price instability
Currently, allowances are free of charge, which causes big trouble with carbon pricing. At the same time, carbon pricing has not met international standards. The national authority needs to pay attention to its carbon market management measures.
2. Limited participants and single transaction
Only those who are obligated can participate in the transactions. Other organizations such as financial institutions and investors are not able to join the trading. Although it can lower the risk of market speculation, it will not help expand the market size, including funding and trading activities.
3. Carbon emission inventory system
The inventory data and improvement of the carbon market will be a crucial step for China's carbon neutrality commitment. The national authority is considering including more industries in the process of gradual improvement.
The current mechanism is relatively complicated. The national authority needs to enhance its carbon emissions inventory system and also improve carbon trading policies. To help achieve carbon neutrality, tightening free allowances need to be considered.
Even though it's expected that the market size will expand to 8-9 billion tons per year, but there are still few challenges to be overcome.
Reference: Link 1