UPDATE 1-Shanghai firms meet carbon targets after last-day permit auction

Mon Jun 30, 2014 3:41am EDT

(Updates to confirm that all firms now in compliance, adds Reuters Instrument Codes)

BEIJING, June 30 (Reuters) - A total of 7,220 tonnes of CO2 permits were auctioned by the Shanghai carbon exchange on Monday, the bourse said, enabling local firms to meet a deadline to comply with their carbon targets.

The permits, sold to companies at a minimum price of 48 yuan ($7.73) per tonne, were only a small fraction of the 580,000 tonnes of permits put on offer by the Shanghai government, but were enough to allow seven laggard firms to meet their targets, the exchange confirmed.

"All of the companies have complied with their targets, with two of the seven laggard companies buying the permits they needed from the auction and the other five surrendering on time," said Tong Yan, founder of ideacarbon, a Chinese consultancy based in Shanghai.

"We didn't expect a higher bidding price from the auction -all the big shortfalls had been filled if you look at the trading volumes since the auction was announced," said Tong.

The 191 local firms covered by the scheme faced a Monday deadline to buy permits to cover their emissions in 2013. The secondary market for permits closed last Friday, with a final price of 39.4 yuan per tonne.

Companies buying permits have to surrender them to the government by June 30 to cover their emissions, but a shortage of permits on the market had made it difficult for some of the bigger emitters to comply, forcing Shanghai to announce the last-day auction.

Seventy percent of carbon permits on the exchange are allocated to large state firms such as the Baoshan Iron and Steel Corp., Huaneng Power, and Shenergy Corp, which has impeded liquidity.

But after a rise in activity in the last few days of trade, only seven of the 191 companies had not yet met their targets, according to an official note published on Friday.

"There is limited demand from the remaining seven companies, and the ratio of sellers to buyers was rising in the last couple of days, which put pressure on prices and encouraged most companies to buy all they needed from the market," said Tong.

The Shanghai Environment Energy Exchange launched the market last November, and is one of seven pilot carbon trading exchanges in China.

Shanghai handed over three years of permits for free in a one-off allocation in 2013, and it allows companies to bank surplus permits to use over the following years.

Shanghai issued 160 million permits overall for the compliance year 2013, and more than 1.5 million permits changed hands in the seven months since the market opened.

Shanghai has not yet opened its market to speculative investors, and the permits made available at Monday's auction could only be bought by companies struggling to meet their targets. ($1 = 6.2062 Chinese yuan) (Reporting by Kathy Chen and David Stanway; Editing by Richard Pullin and Muralikumar Anantharaman)

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