China city dips toe in carbon cap and trade

Tue Feb 9, 2010 2:27pm GMT

Market News

By Emma Graham-Harrison

BEIJING, Feb 9 (Reuters) - The northern Chinese port city of Tianjin launched a small-scale energy intensity trading scheme on Tuesday with three pilot sales, taking a possible first step towards a nationwide carbon cap and trade scheme.

International heavyweights Citigroup Global Markets and Gazprom Marketing and Trading were the buyers of a first set of "Carbon Emission Allowances", for energy savings equivalent to around 4,500 tonnes of coal, from three suppliers of heating.

After validation and verification, the more than 500,000 yuan ($73,250) deal could result in the trade of up to 11,500 CEAs, the companies involved said in a statement.

"The traded unit is carbon emission credits, but it comes from the energy intensity target," clean energy firm Arreon, which has helped define the scheme's structure, told Reuters in a written answer to questions about how it works.

"Participating entities out-performance of the energy intensity cap is 'energy saving', which can be converted to carbon reduction by applying a factor equivalent to the carbon intensity of the energy source."

This year the scheme, run by the Tianjin Carbon Exchange, will cover only some heat supply firms and hospitals, trading under targets set as part of an overall energy intensity goal handed down to Tianjin by the central government.

The role of Citigroup and Gazprom is similar to that of liquidity providers, Arreon said. The deal is worth little to such large firms, but they are likely looking to stake out a presence in what could rapidly become a very lucrative market.