China’s carbon market could get tougher under new proposal

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Chinese regulators are considering a bigger cut in new carbon quotas, a move that would make it more expensive to operate small, inefficient coal-fired power plants.
A draft plan from the Ministry of Ecology and the Environment for carbon quotas for more than 2,000 electricity companies over 2021 and 2022 proposes that large coal-fired power plants will receive 7.9% less quotas per year. megawatt-hour produced, according to a person familiar with the document. The reduction is deeper than a 1% reduction proposed previously. This would be even more severe for coal-fired power plants of less than 300 megawatts, which would see their references reduced by 12%.
A spokesperson for MEE did not respond to a phone call for comment. The plan has not been finalized and could be subject to change, said the person, who asked not to be identified because the plan is not public.
When China launched its carbon market last year, it granted too many allowances to power plants, allowing several companies to keep those that were surplus at the end of the year. By cutting emissions now, power plants will have to buy up those excess allowances and drive up prices, or burn less coal.
Consultancy Refinitv raised its China carbon price forecast for 2022 to 65 yuan per tonne from 58 due to tighter benchmarks, said Qin Yan, a senior analyst there. Allocations were 57.46 yuan per ton on Friday.
“The new plan could remove the accumulated surplus from the first period,” she said.

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