China plans carbon futures to help meet emissions goals

China is strongly committed to launching a carbon futures market as part of efforts to meet its emissions-reduction targets, a top executive at the China Securities Regulatory Commission (CSRC) has said.

Research into carbon futures contracts has been underway for some time, CSRC vice chairman Fang Xinghai said at the Futures Industry Association's virtual Asia Derivatives Conference today.

"We are determined to launch a carbon futures market to price carbon so that firms can better plan their carbon reductions," Fang said. "We expect the capital markets to play an irreplaceable role" in addressing climate change, he added.

Chinese president Xi Jinping said in September that China's emissions will peak before 2030 and that the country will achieve carbon neutrality by 2060. These pledges will lead the Chinese capital markets to pay much more attention to climate change, Fang said.

Fang did not give any details of progress towards a carbon futures contract. China has several regional spot emissions trading markets and is planning to launch a national emissions trading scheme in the next few years, but does not yet have a carbon derivatives market.

China's futures market in general is still at its initial stage of development, despite rapid growth in recent years. The country's capital markets will continue to open up to international investment, which helps enhance the quality of the Chinese derivatives markets and benefits price discovery, Fang said.

International investors make up around 10pc of both trading volumes and open interest in China's crude oil, iron ore and low-sulphur fuel oil contracts, he said.

China's position as the world's largest consumer of many raw materials makes it a natural home for such commodity futures, but the country is not necessarily pushing to displace overseas contracts as global benchmarks. "If a lot of indexes are formed in China, we are happy to see that, but I would view that as a natural consequence of the increase in market quality. It is not a particular goal that we want to pursue," he said. The CSRC is responsible for granting licences to new exchange products.

The Shanghai Futures Exchange (SHFE), China's leading commodity futures market, is considering launching new oil and gas contracts, the head of the exchange's Singapore office Lawrence Zhang confirmed. China's first crude futures contract launched on the SHFE's International Energy Exchange in 2018.

The SHFE is looking into listing crude options, freight index options and diesel, gasoline and LNG futures contracts, Zhang said, without giving details. The exchange has not given a timeframe for the new contracts, but attendees at the major China International Oil and Gas Trade Congress last month said gasoline and diesel futures could be launched as early as next year.

By Kevin Foster