• Taking back of quotas when the economy slows is urged
• Nation advised to auction some emission quotas at beginning

Operators of two local pilot carbon-trading programs in China are urging designers of a national trading scheme to avoid allocating more emissions quotas than the market needs in order to avoid some of the supply imbalances the European Union has experienced with its own program.
China should “make it possible to take back carbon quotas in an economic downturn” to learn lessons from the European Union, said Zhou Cheng, vice president at the China Beijing Environment Exchange. A glut of carbon allowances could result as the economy slows because allocations are based on historical emissions, Zhou said.
China Emissions Exchange, which overseas carbon trading in every part of Guangdong except the city of Shenzhen, is advising the government to auction some of the quotas at the beginning rather than making all permits free, said President Ye Jun.“This is to attract more investors, raising liquidity in the market,” he said.
China has targeted a 2017 start for a national emissions trading scheme to help reduce greenhouse gases. In the run-up to that date, seven local projects have been in operation. The Beijing Environment Exchange and the China Emissions Exchange are among the seven pilots. The other regions include Shanghai, Shenzhen, Tianjin, Chongqing and Hubei.
China’s national system will adopt a cap-and-trade rule, under which the biggest corporate polluters buy credits from those that don’t pollute as much and companies are encouraged to cut their emissions so they can sell their unused allocations.

Permit Glut

The European Union’s Emissions Trading Scheme, begun in 2005, is the world’s biggest program for trading greenhouse gas emissions allowances. The EU ETS has been criticized, among other things, for an over-allocation of permits and price volatility.
Benchmark EU front-Dec. carbon futures have lost almost 40 percent this year on ICE Futures Europe in London as nations handing out free permits add to increasing supply from almost-daily auctions.