Shanghai Opens Carbon Market to Trading Pros to Boost Liquidity

Shanghai, China’s financial hub, allowed an institutional investor to trade emission permits for the first time in a bid to boost liquidity on its exchange.

An unidentified investor traded allowances yesterday to emit 5,000 metric tons of greenhouse gases at 29 yuan ($4.70) each on the Shanghai Environment Energy Exchange, the bourse said in a statement on its website. More than 10 such parties have applied to the exchange to participate in emissions trading, it said.

China, the world’s biggest carbon emitter, has started carbon markets in Shanghai and six other manufacturing centers in preparation for a national market by 2016 as it tries to balance pollution reduction with economic growth. Shenzhen, the southern city near Hong Kong, has said it also will allow foreign investors to trade carbon permits.

“The carbon market in Shanghai will be more active, with players increasingly getting involved as the threshold for entry is quite low,” Zhang Zemin, a director at Climate Bridge Ltd. in the coastal Chinese city, said by phone today. “The Shanghai exchange will be one of the most successful among the seven pilot programs.”

The Shanghai exchange started trading permits in November 2013 and had volume of about 1.55 million tons in its first year ending June 30, the bourse said in a separate statement on July 2. Investors with registered capital of at least 1 million yuan can apply with the Shanghai exchange, according to an exchange document dated Sept. 3.

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“Opening up the market to institutional investors will boost market liquidity and make it more active,” today’s statement shows. “It will also bring in more capital to help with energy conservation and carbon reduction.”

Pilot programs in Guangdong, Tianjin and Hubei have allowed investors to trade permits with companies bound by emission limits, known as “compliance players,” Bloomberg New Energy Finance said in a report in April. Restrictions on outside investors has limited liquidity in Shanghai and Beijing, according to the report.

“The involvement of season carbon market players would bring experience and expertise as well as liquidity to emerging pilot markets,” Milo Sjardin, the head of Asia Pacific at New Energy Finance, said in the report.