China's Shenzhen sells only a 3rd of discounted carbon permits in auction

BEIJING, June 6 Fri Jun 6, 2014 2:42pm IST

BEIJING, June 6 (Reuters) - China's Shenzhen city sold on Friday only about a third of the 200,000 carbon permits offered in its first-ever auction despite pricing them at half the market rates due to restrictions on eligibility of bidders and questions about the scheme.

The southern city, one of seven regions in China hosting carbon markets as the world's biggest-polluting nation seeks to cut its emissions, arranged the auction to help its power generators and manufacturers comply with the scheme.

A total of 94 buyers successfully bid the official minimum price of 35.43 yuan, bagging just over a third of the permits on offer - or nearly 75,000 - an official at the China Emissions Exchange told Reuters.

Sources said some traders declined to participate in the auction because they were unhappy about the scheme and plan to appeal to the government about how their emission targets have been set.

"They don't think the rules are right and they don't want to pay more than they think they should," a Shenzhen-based trader who did not wish to be named told Reuters.

The 635 firms participating in the scheme have intensity-based CO2 targets but some disagree with how those have been calculated.

Initially the exchange had said that the 200,000 permits would not be enough to cover the shortfall for nearly 200 companies that emitted more CO2 in 2013 than they have permits to cover for.

The minimum price was set at half the average price since the market opened in June last year, and sparked complaints from some traders who said the government undermined the value of their investments in the market.

Since the May 27 announcement, secondary market prices have dropped 12 percent to 66.02 yuan, still making Shenzhen's carbon price the highest in China.

Demand at the auction was restricted somewhat as speculators were not allowed to participate, and emitters could only buy enough permits to cover for 15 percent of their shortage.

Scheme participants must hand over permits to the government to cover for their 2013 emissions by the end of this month, or face fines. (Reporting By Kathy Chen and Stian Reklev; Editing by Muralikumar Anantharaman)

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