* Hubei to be second Chinese emissions exchange to sell
* Government still to give away 90 pct of the permits
* Hubei to ban carryover of unused permits one year to next
By Kathy Chen and Stian Reklev
BEIJING, Feb 11 China's Hubei province will
auction up to 2 million carbon permits at a government-set
minimum price next month to kick-start the nation's sixth pilot
emissions trading scheme (ETS).
Hubei's carbon market will be only the second to sell a
share of the permits. In most of the other trial schemes, the
permits have been handed out for free.
China, the world's top emitter of greenhouse gases, is
seeking to limit its impact on climate change, and successfully
operating the schemes is seen as vital for the foundation of a
national emissions market.
Under China's schemes, hundreds of power generators and
manufacturers must buy permits if they emit climate-changing
gases above a certain allocated quota.
The Hubei scheme will cap emissions from 138 power
generators and manufacturers at around 300 million tonnes of
carbon dioxide a year, making it China's second largest market
after Guangdong in terms of emissions covered.
"We will arrange the first round of auctions ahead of the
market launch in March. We are thinking about setting the
available amount at one to two million," Wang Hai, vice general
manager of the China Hubei Emission Exchange, told Reuters.
No specific date has been set for the launch or auction, but
they are expected to fall in the same week. The exchange will
host all trading of emission permits under the Hubei ETS.
The minimum auction price for the permits has not been set.
In Guangdong province, the only other region charging for
carbon permits, the government set the minimum price at 60 yuan
($9.90), drawing complaints from local industry, which said the
price was too high.
Ninety percent, or 270 million, of the Hubei permits will be
handed out to emitters for free, although nearly a third of
those will be held back until firms have reported their annual
emissions, allowing the government to adjust the number of
permits each company gets.
This will cast uncertainty on pricing, because companies
will not know how many permits they will need from the open
market, said Chen Bo, an assistant director at the Research
Centre for Climate and Energy Finance at Beijing's Central
University of Finance and Economics.
Bargaining is likely to be between companies and the
government rather than between companies trading permits, Chen
The remaining 30 million permits each year will be set aside
in various government reserves, with 9 million to be auctioned.
In a change from other carbon markets, Hubei will not allow
companies to bank unused permits from one year to the next, but
will instead cancel any surplus permits.
Local government officials were not available for comment,
but the ban on permit banking is most likely an attempt to
prevent the development of a glut that could pull down prices.
In markets such as the EU Emissions Trading System and the
Regional Greenhouse Gas Initiative in the Northeastern United
States, annual surpluses of permits carried over from year to
year have caused big dips in demand and falling prices,
rendering the schemes ineffective in cutting emissions.
Hubei's draft rules also specified that companies can use
offset credits from carbon-cutting projects to cover for up to
10 percent of their emissions, but only projects located within
the province would be eligible.
(Editing by Tom Hogue)