strict requirements on the design and improvement of trading platforms and rules. If the trading
rules of a single trading platform are not perfect
at the moment the market is launched, there will
be a strong impact, and the competition mechanism will not be in place and functioning correctly, which runs counter to the goal of
optimising rule-related services.
38
Decentralised trading means that trading is
conducted simultaneously on many trading platforms under strictly unified calculation criteria
and trading rules. Market systems are improved
through free competition and the survival of the
fittest. Decentralised trading is common in carbon exchanges in Europe and North America.
First, unified, clear and transparent carbon
emission calculation criteria should be set up to
ensure that the objects traded in different markets
are homogeneous and to avoid cross-market
arbitrage. Second, unified registration systems
should be set up to ensure the reliability of
cross-market trading information. Once these
conditions are met, exchanges should be allowed
to carry out carbon trading at the same time. This
will introduce competition among trading platforms, forcing them to improve services and
motivating them to innovate, thus driving China’s carbon market towards maturity and
perfection.
39
In decentralised trading, local exchanges
could attempt to form a trading alliance or use
other cooperative mechanisms to facilitate
mutual recognition of their members. They could
also work towards integration by engaging
financial institutions to open accounts on behalf
of clients. This would optimise the process of
opening, registering and managing accounts and
facilitate cross-market trading.
8.5.4 Fluidity Needs to Improve
China’s pilot carbon markets have a common
problem of poor liquidity, low volumes and low
turnover. Currently, the daily trading volume of
most pilot carbon markets is small. Although the
phenomenon of zero deals on trading days during
the non-performance period is becoming less and
less frequent, a daily trading volume of only
hundreds or dozens of tonnes is not uncommon.
40 Due to such low fluidity, it is difficult to
attract financial and investment institutions to
carry out stable and active carbon trading activities, which increases the likelihood that the
market will be controlled by a few oligarchs.
The seven pilot carbon markets are dominated
by trading through performance agreements. It is
common for trading volume and value to be high
when a performance period is near at hand, and
low after it has ended. During the three performance years of 2013–15, the total trading volume of the seven pilot carbon markets was
slightly above RMB 2 billion. This is not enough
for a country like China with a huge carbon
emissions reduction potential. The size of the
global carbon market in 2011 was $176 billion
(the EU Emissions Trading System accounted for
more than 90%). Unlike the EU carbon market,
which has various carbon financial products
(futures, options, spot, forwards), China only has
the spot carbon product, and no price discovery
or risk hedging tools. China’s carbon exchanges
are far from mature.
41
Moderate fluidity is the key to achieving
reasonable prices and guiding companies to
reduce emissions cost-effectively. Without fluidity, those companies planning to purchase
allowances would not be able to buy them, and
those planning to sell would not sell them. Nor
would companies be able to compare the price
with their own emission reduction costs and
make cost-minimising emission reduction decisions. To improve fluidity, allowances must be
38
Wang Junchun, A National Carbon Market is a
High-Speed Train for China’s Green Low-Carbon System, in Strategic and Emerging Industries of China, 2017,
pp. 48–49.
39
Chen Xiangguo and Ma Aimin, Construction of the
National Carbon Market is Faced with New Challenges,
in Energy Conservation and Environmental Protection
2016, pp. 24–25.
40
Lu Zhengwei and Tang Weiqi, Operation Experience
from Domestic Pilot Carbon Markets and Construction of
the National Market, in Fiscal Science, 2016, pp. 81–94.
41
Jiang Rui, Carbon Trading and Outlook on China’s
Carbon Market, in China Policy Review, 2017, pp. 52–
56.
554
S. Yaodong and A. Gillespie
rules of a single trading platform are not perfect
at the moment the market is launched, there will
be a strong impact, and the competition mechanism will not be in place and functioning correctly, which runs counter to the goal of
optimising rule-related services.
38
Decentralised trading means that trading is
conducted simultaneously on many trading platforms under strictly unified calculation criteria
and trading rules. Market systems are improved
through free competition and the survival of the
fittest. Decentralised trading is common in carbon exchanges in Europe and North America.
First, unified, clear and transparent carbon
emission calculation criteria should be set up to
ensure that the objects traded in different markets
are homogeneous and to avoid cross-market
arbitrage. Second, unified registration systems
should be set up to ensure the reliability of
cross-market trading information. Once these
conditions are met, exchanges should be allowed
to carry out carbon trading at the same time. This
will introduce competition among trading platforms, forcing them to improve services and
motivating them to innovate, thus driving China’s carbon market towards maturity and
perfection.
39
In decentralised trading, local exchanges
could attempt to form a trading alliance or use
other cooperative mechanisms to facilitate
mutual recognition of their members. They could
also work towards integration by engaging
financial institutions to open accounts on behalf
of clients. This would optimise the process of
opening, registering and managing accounts and
facilitate cross-market trading.
8.5.4 Fluidity Needs to Improve
China’s pilot carbon markets have a common
problem of poor liquidity, low volumes and low
turnover. Currently, the daily trading volume of
most pilot carbon markets is small. Although the
phenomenon of zero deals on trading days during
the non-performance period is becoming less and
less frequent, a daily trading volume of only
hundreds or dozens of tonnes is not uncommon.
40 Due to such low fluidity, it is difficult to
attract financial and investment institutions to
carry out stable and active carbon trading activities, which increases the likelihood that the
market will be controlled by a few oligarchs.
The seven pilot carbon markets are dominated
by trading through performance agreements. It is
common for trading volume and value to be high
when a performance period is near at hand, and
low after it has ended. During the three performance years of 2013–15, the total trading volume of the seven pilot carbon markets was
slightly above RMB 2 billion. This is not enough
for a country like China with a huge carbon
emissions reduction potential. The size of the
global carbon market in 2011 was $176 billion
(the EU Emissions Trading System accounted for
more than 90%). Unlike the EU carbon market,
which has various carbon financial products
(futures, options, spot, forwards), China only has
the spot carbon product, and no price discovery
or risk hedging tools. China’s carbon exchanges
are far from mature.
41
Moderate fluidity is the key to achieving
reasonable prices and guiding companies to
reduce emissions cost-effectively. Without fluidity, those companies planning to purchase
allowances would not be able to buy them, and
those planning to sell would not sell them. Nor
would companies be able to compare the price
with their own emission reduction costs and
make cost-minimising emission reduction decisions. To improve fluidity, allowances must be
38
Wang Junchun, A National Carbon Market is a
High-Speed Train for China’s Green Low-Carbon System, in Strategic and Emerging Industries of China, 2017,
pp. 48–49.
39
Chen Xiangguo and Ma Aimin, Construction of the
National Carbon Market is Faced with New Challenges,
in Energy Conservation and Environmental Protection
2016, pp. 24–25.
40
Lu Zhengwei and Tang Weiqi, Operation Experience
from Domestic Pilot Carbon Markets and Construction of
the National Market, in Fiscal Science, 2016, pp. 81–94.
41
Jiang Rui, Carbon Trading and Outlook on China’s
Carbon Market, in China Policy Review, 2017, pp. 52–
56.
554
S. Yaodong and A. Gillespie