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BEIJING, June 27 (Reuters) - Big emitters traded up to 1.6 million carbon permits on the Chinese capital's pilot emissions market in its first seven months of operations, the exchange said on Friday.
Traders and auditors blamed poor liquidity on participants' lack of expertise, and on complaints that drove off others.
With 47 million permits on offer by Beijing in the 2013 compliance year, the figure of permits traded reflects a turnover rate of just 3.4 percent.
In contrast, about 64 percent of the offered volume is traded through two-way talks offline, data compiled by the trading platform, the China Beijing Environment Exchange, shows.
Beijing is the first of China's seven carbon trading pilot markets to reach a June 27 compliance deadline under a cap-and-trade system, although the date had been delayed nearly two weeks because of opposition from participants.
Some of the participants, which include universities and hospitals, lacked the high degree of expertise necessary for trading, said an auditor responsible for verifying firms' emission data.
"It is just troublesome to include small operators in such a complicated scheme," added the auditor, who did not want to be identified because of the sensitivity of the topic.
China has not yet set a binding legal national cap, so some large firms, including state-owned enterprises, question the legitimacy of local government in Beijing to curb CO2 emissions.
More than half the firms ordered to join the scheme, including top refiner Sinopec and Microsoft China, had not yet complied as of June 18, an official report showed.
Emissions market regulator the Beijing Development and Reform Commission was not immediately available to say why companies resisted.
Besides the lack of carbon trading expertise, many participants were inactive because they were not given the autonomy to make trading decisions.
"It is a small market, very few of the main market participants are large emitting facilities, and the margin is small because the initial carbon pricing was high," said Song Changan, a trader with market consultant company Hanergy.
Unlike some other pilot markets, made up mostly of heavy industry, Beijing caps CO2 emissions from many small businesses, which take tiny market positions but are hard to regulate because they don't have specialised monitoring staff.
Beijing priced its carbon permit at 50 yuan when its market opened in November, and prices have risen 33 percent since, the bulk of the increase contributed by a rise of nearly 17 percent to Friday's close of 66.48 yuan.
Trading volume on the exchange reached a record high on Thursday, with more than 101,000 permits traded. Average trading volume had hovered at a few thousands in the past few months before surging to a five-digit level in late May.
Beijing lets firms strike over the counter deals but requires the exchange to take over the transfer of permits and settlements so as to regulate risk.
The largest single OTC deal, which was announced on Wednesday, was settled at less than half of the day's opening price, exchange data shows.
"Large amounts of permits are actually traded over the counter because the trading price for OTC can be significantly lower than the market price," said the Hanergy trader.
Market turnover is a reflection of the tightness of the emission target, spread and price volatility, and poor disclosure of information could also hurt market confidence.
"Without transparent data, it is hard for investors to position themselves," said another trader, who asked not to be identified because he is not authorized to speak to media. (Editing by Clarence Fernandez)