(Bloomberg) -- China’s carbon market is set to expand to cover more polluting industries this year, but a persistent surplus and the expiry of old permits following a rule change may slow a price rally seen in 2024.
Total supply of allowances in the market — which currently only covers the power industry — rose to 5.2 billion tons in 2024, up 16% from its debut in 2021, the Ministry of Ecology and Environment said in a statement on Friday. On an annual basis, prices rallied 23% to 97 yuan per ton last year while the value of transactions increased more than a quarter, it added.
Almost all utilities successfully met pollution reduction targets, the ministry said, as the nation prepares to cover three more industries this year, namely aluminum, cement and steel-making. That is estimated to increase permit supply to 8 billion tons, according to Chinese news outlet Caijing, citing an exchange official on a forum last month.
China’s carbon market has seen consistent growth but is also plagued by oversupply, with an estimated excess of 300 million tons. Late last year, the regulator set limits on hoarding, which will see a large amount of those unused permits lose value by the end of 2025.
“There will be more supply to weigh on price,” said Song Yutong, an analyst with London Stock Exchange Group. The expansion into new industries may not do much to tighten the existing supply, she added.
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