China's carbon emission allowances (CEAs) today recorded its strongest single-day increase this year, on the back of more favourable allowance carry-over rules for newly covered industrial sectors introduced on 18 November.
The CEA price index rose by 8.3pc today, the largest daily increase in 2025 so far, closing at 66.86 yuan/t ($9.40/t), according to data from the Shanghai environment and energy exchange. This was an increase of Yn5.10/t from the previous session.
All CEA contracts hit the 10pc mandated price ceiling in morning trading, a market trader said. The CEA19-20 contract traded at Yn67.65/t for 5,000t and held at that level until market close, making it the top performer for the day. Later-dated contracts for 2021-24 settled off their intraday highs but still rose by 6.2-9.1pc from the close on 18 November.
The rally came on the back of the ministry of ecology and environment's after-market hours announcement a day earlier that it would grant a 100,000t base carry-over allowance to steel, cement and aluminium firms — sectors added to the ETS in March.
Demand resulting from this policy was expected to push CEA prices higher.
The new terms differ from those for the power sector, which had a base carry-over quota of only 10,000t, and additional carry-over quotas were linked to a firm's net sales volume of CEAs. Surplus allowances that could not be carried over were voided. This mechanism, designed by regulators to address market oversupply and thin liquidity, had triggered significant sell-offs by firms with surplus CEAs, driving prices down from about Yn100/t at the start of the year to below Yn60/t in late October and early November.
Prices are now correcting towards their fundamental value, a market participant told Argus. "The market had expected the new sectors to face the same restrictive carry-over policy as the power sector, which pushed CEA prices to unsustainably low levels," they said.
Further increases are likely in the near term, but a return to last year's peaks before the end of 2025 is unlikely, they added.
