China's Shenzhen says carbon market had 10 pct surplus in first year

BEIJING, March 25 Mon Mar 24, 2014 1:42pm EDT

BEIJING, March 25 (Reuters) - Companies covered by the carbon emissions trading scheme in China's fast growing city of Shenzhen saw a surplus of 3 million permits in the first year of the market, vice mayor Tang Jie said, meaning around 10 percent of the allowances were unused.

The scheme, the first of seven pilot carbon markets launched to put the brakes on China's rapidly rising greenhouse gas emissions, regulates carbon emissions from more that 600 power generators and manufacturers.

The city issues permits to companies and those that have a surplus can sell them while those that emit more than the permits allow have to buy more on the market. A surplus, if carried forward, could undermine prices next year and reduce the incentive for firms to cut emissions.

"We are studying measures to cancel the verified surplus," Tang told local newspaper 21st Century Business Herald on Monday.

He said the companies, which reported their emissions to the city government of the southern industrial hub near Hong Kong last week, had a 3 million permit surplus for 2013.

The city has not published the historical emission levels of the participating companies, so it was not immediately clear whether scheme participants had cut carbon dioxide emissions or whether the market had been allocated too many permits.

Shenzhen has previously said it plans to allocate around 100 million permits over the 2013 to 2015 period, meaning the 2013 emissions stood at around 30 million tonnes of carbon dioxide.

Tang said Shenzhen plans to include buildings and transport in the scheme, bringing the share of the city's emissions covered by the market to 60 percent, but did not give a date.

He also said Shenzhen is keen to link its market to international emission schemes, although the central government has said China is unlikely to do so before 2020.

He said he expected Shenzhen, which has a population over 10 million, to see its carbon emissions peak in 2017 or 2018, a full decade before China's national emission levels.

China, the world's biggest greenhouse gas emitter, is launching the seven regional pilot markets ahead of a national market later this decade as a key policy to meet a target of cutting its emissions per unit of GDP to 40-45 percent below 2005 levels by 2020.

Shenzhen permits closed at 81.90 yuan ($13.23) on Monday, the most expensive of the five Chinese markets launched so far.

($1 = 6.1888 Chinese Yuan) (Reporting by Stian Reklev and Kathy Chen; Editing by Anthony Barker)

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