DEAL CHINA IN

China likely to trade emissions by year end
Michael Wei (w/ Coco Li and Kirby Chien), February 19, 2009 (Thomson Reuters)

"China's first emissions exchange is expected to begin trading by the end of this year as it works out trading procedures and recruits more member firms, a senior executive of the bourse said…

"The Tianjin Climate Exchange was established last September, but acceptance has been slow with the smaller Chinese companies that the exchange is trying to attract…The bourse is still working on operational details with central government authorities and potential member companies before trading can kick off…

"Beijing has long vowed to save energy and reduce emissions, setting a goal to reduce all emissions by 10 percent from 2006 to 2010…But in order to initiate active trading on the country's only emissions exchange, China needs to change the way it allocates emissions credits…"

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"Chicago Climate Exchange (CCX) [a voluntary market that aims to reduce emissions of gases like carbon dioxide owns] 25 percent of the Tianjin exchange…An asset management unit of China's top oil and gas firm China National Petroleum Co (CNPC) owns over 50 percent of the venture and the Tianjin Property Rights Exchange owns the rest…

"Emissions credits in China are now allocated by the central government to the provinces, which often ignore environmental regulations to focus on economic growth, which produces tax revenues.

"Beijing should hand out emissions credits to companies directly, bypassing local officials and, more importantly, giving firms the incentives to bring emission credits to market…"

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"The Tianjin bourse now has only about 20 member companies, which include the world's largest bank ICBC, China Construction Bank and Delong Steel, a unit of Singapore-listed Delong Holdings.

"The Chicago exchange had only 13 members when it began trading in 2003 and now boasts more than 400 member firms…Total trading volume at CCX surged to 110 million tonnes in 2008 from only 2.2 million tonnes in 2003…

"The new exchange's success could hinge on Beijing's official support for environmental goals, something the Chicago exchange does not enjoy as the United States is still not a party to the Kyoto Protocol."