BEIJING Jan 27 Beijing's carbon market will continue to trade local permits even after a three-year pilot phase expires in June, its market regulator said, seeking to allay worries that cancellation of permits could trigger a price collapse.
If extended to the six other pilot exchanges, the move could help manage volatility arising from the expiry of the current phase of trading and the establishment of a nationwide market, now delayed until next next year.
It remains unclear which firms participating in the existing pilot schemes will be obliged to join the nationwide market. That has raised concerns that firms could try to dump their permits once the pilot phase ended.
The regulator issued a statement to more than a thousand market participants on Tuesday, saying that local permits would remain valid even for those companies that might not be obliged to join the national market.
The Beijing Development and Reform Commission has submitted plans to convert local permits into ones that are tradable on the nationwide exchange, but it did not provide further details.
Nearly 500 local companies were brought into Beijing's emission trading scheme (ETS) in 2013, with the number more than doubling this year after the city expanded coverage to the public transportation sector.
Beijing has traded a total of 5.7 million permits. The market closed at 38.9 yuan ($5.91) per permit on Tuesday, down from a high of 60 yuan in August 2015.
To improve market liquidity, the Beijing regulator will also reveal specific rules that would allow cash-strained private companies to obtain financing by selling their permits to licensed carbon trading firms, and then buy them back.
The Beijing carbon bourse announced on Monday that brokers CMB Sinolink Investment had lent 10 million yuan to the Huatong Group, a local urban heating provider, in return for an undisclosed number of its permits. CITIC Securities agreed a similar buyback deal of 13.3 million yuan last year.
Although the Beijing regulator's decision should restore market confidence in local permits, some traders remain bearish with most industries under pressure to cut a supply glut.
"We are not optimistic about this year, it is not easy to cash out in the spot market, it will still be hard to attract inactive companies even if they are offered these low-interest cash loans," said a broker in Beijing who declined to be named ($1 = 6.5797 Chinese yuan renminbi) (Reporting by Kathy Chen and David Stanway; Editing by Ed Davies)