The national carbon emission trading will be officially opened on July 16, will it affect the steel wire rope manufacturers? What is the impact?
According to the National Energy Bureau, China's carbon emission industry accounts for 43% of the total in 2019. The first industries that the carbon exchange has brought into the market are also the power sector. Since then, it will be included in building materials, steel, nonferrous industries, etc. in the future, the carbon exchange will cover almost all the major carbon emission industries.
How does the carbon exchange affect carbon emissions?
There are two main trading varieties in carbon exchange: carbon quota and CCER. Carbon quota is the hard currency of the market, while CCER is relatively a supplementary mechanism, which is more affected by policies.
What are the government allocated carbon emission rights and national certified resource emission reduction (CCER)? And how to calculate the quota?
1) Carbon quota: the amount of carbon emission obtained by enterprises, which is released free of charge by relevant departments in the initial stage.
The formula for calculating the quota obtained by each enterprise is as follows:
Total quota of units = reference value of power supply * actual power supply * correction factor + reference value of heat supply * actual heat supply
In short, the relevant departments can determine a baseline based on the historical carbon emission intensity of the industry. Combined with the production capacity of the enterprise, they can know the carbon emission quota of the enterprise.
For example, if the benchmark emission intensity of power enterprises is 1 and the capacity is 100 kwh, the carbon emission quota can be calculated to be 100. If the carbon emission of enterprises is lower than the industry average through equipment upgrading, there will be surplus carbon emission quota. If the actual emission intensity of a leading enterprise is only 0.8, and only 80% of the carbon emission quota will be consumed when generating 100 kilowatt hour power, then the remaining quota can be traded in the market for profit.
On the other hand, if the carbon emission intensity of enterprises is higher than the average level of the industry, the production capacity will not be full, and additional carbon emission rights will need to be purchased, which will increase the cost.
2) National certified voluntary emission reduction (CCER): 254 projects, such as new energy, hydropower, forestry carbon sequestration and biogas, which have been applied for record by the competent authorities, can apply for CCER independently. However, the key emission units can only use 5% CCER to offset the gap of carbon emission quota. At the beginning, Shanghai carbon exchange only allowed 1% of CCER to be supplied to the market, which led to low prices. It is important to note that in 2017, the NDRC suspended accepting CCER methodology, which led to the supply of CCER limited and some transaction prices rising significantly.
From above, we can see that the goal of carbon exchange is to influence the cost of enterprises through market-oriented carbon price, and the higher the carbon price, the less carbon emissions. In short, when the carbon price increases, it will increase the cost of enterprises. When the profits of enterprises decrease or even lose money, they will take the initiative to reduce production, so as to reduce the amount of carbon emissions. In addition, it will also promote enterprises to upgrade equipment and reduce unit energy consumption.
Therefore, in the long run, steel rope manufacturers will be affected and the production cost will be improved.