Trading in China's nascent carbon and power markets - with Jeff Huang

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Today we will be talking about China’s new carbon market, from the market perspective, with Jeff Huang of AEX, a Hong Kong based company seeking to create a transparent and neutral forward trading facility for hedging power and emissions in China. AEX empowers China power and emissions market participants with market data and analytical tools, market insight, and by sharing international trading and risk-management best-practices.

Here are a few things we cover in this episode:

  • An assessment of early trading in China's newly launched national carbon market.
  • We hear Jeff's opinion on how benchmark allocation could evolve into auction-based allocation.
  • Jeff discusses clean-dark spreads, which is the difference in price between the revenue from the power price versus the costs in terms of fuel (the coal price) plus the carbon price.
  • Jeff talks about the provincial spot electricity market pilots, in particular Guangdong, and how much traders have to learn to master these markets.
  • We discuss the importance of futures contracts, which are contracts that obligate the parties to transact an asset at a predetermined future date and price. We discuss the benefits of futures in terms of providing market price forecasts as well as enabling generators to reduce risks.
  • We discuss whether carbon markets might evolve to provide a meaningful long-term signal rather than only a short-term price signal.

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