China, the world’s biggest emitter of greenhouse gases, said it will allow foreigners to trade carbon permits in Shenzhen, making it the nation’s first emissions exchange to welcome outside investors.
The Shenzhen exchange has yet to set the date or finalize other entry procedures for foreign investors. The State Administration of Foreign Exchange has allowed foreign participation in principal, according to a statement today on the website of the China Emissions Exchange.
The southern city of Shenzhen near Hong Kong started carbon trading last year as the first of seven pilot programs in China. The exchanges, constituting the world’s biggest emissions trading system after Europe, may be a precursor to a nationwide system.
“Foreign investors will be more active traders than Chinese companies with only a limited need to trade their allotments, adding to liquidity,” said Charlie Cao, a Beijing-based analyst from Bloomberg New Energy Finance. “Most foreign investors have carbon trading background,” bringing more experience to the market, he added.
Shenzhen is natural place to start because it’s home to the Qianhai financial district, a testing ground for trading the yuan more freely, Cao said. “At the pilot stage, the possibility that China will open other carbon markets to foreign investors is low.”
Improved liquidity from additional investors will help price discovery and encourage companies to invest in energy savings and carbon reduction, according to the statement.