Key Takeaways:
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• Carbon permit supply increased 16% to 5.2 billion tons in 2024
• Prices rose 23% to 97 yuan per ton with increased transaction value
• Market to expand to aluminum, cement, and steel sectors in 2025
• Estimated 300 million ton permit surplus could pressure prices
What Happened?
China’s carbon market is preparing for significant expansion in 2025, adding aluminum, cement, and steel-making industries to the existing power sector coverage. The Ministry of Ecology and Environment reported a 16% increase in total permit supply to 5.2 billion tons in 2024, with prices rising 23% to 97 yuan per ton. The expansion is expected to increase total permit supply to approximately 8 billion tons.
Why It Matters?
This expansion represents a critical step in China’s environmental policy implementation, but faces challenges from market dynamics. While the 2024 price rally and increased transaction value suggest growing market maturity, the persistent oversupply of permits (estimated at 300 million tons) could undermine price stability. New hoarding limits implemented in late 2024 will cause unused permits to expire by the end of 2025, potentially affecting market behavior and pricing mechanisms.
What’s Next?
Investors should monitor several key factors as the market evolves in 2025. The integration of new industries could significantly impact trading dynamics, though analysts suggest this may not immediately address the oversupply issue. The expiration of old permits under new regulations could create short-term market volatility. Price movements will likely be influenced by the balance between increased industry participation and persistent oversupply concerns. Market participants should watch for any additional regulatory adjustments aimed at managing permit supply and maintaining market stability.
