January2023ResearchReportTheGrowthofGlobalCarbonMarketsandOpportunitiesforHongKongfChinaEconomistsOfficeangesandClearingLimitedSummary 11.Introduction 22.Majorglobalcarbonmarketsandexchanges 32.1Typesofcarbonmarket 32.2Overviewoftheglobalcarbonmarket 62.3EUETS 122.3.1Fourdevelopmentphases 122.3.2Marketstabilitymeasuresforcarbonprices 142.3.3EUAs:Spotandfuturestrading 152.4MajorcarbonmarketsandexchangesintheUS 162.4.1Majorregionalcarbontradingmarkets 162.4.2UScarbonderivativestrading 172.5Carbontradinginadevelopingcountry:India 183.China’scarbonmarketdevelopmentandproductinnovation 193.1Regionalpilotcarbontradingmarkets 193.2Thenationalcarbonmarket 213.3Co-existenceofCCERs 233.4DevelopmentoutlookandopportunitiesofcarbonmarketintheMainland 234.ElevatingHongKong'spositionasagreenfinancehubandregionalcarbontradingcentre 245.Conclusion 25ThegrowthofglobalcarbonmarketsandopportunitiesforHongKong10January20231Astheinternationalcommunitytakesactiontoreducegreenhousegasemissionsandlimitclimatechangeemissionstradingsystemsandvoluntarycarbonmarketsarerapidlyexpanding.Thesemarketmechanismswherecarbonunitsintheformofallowancesor“credits”aretraded,increasinglyoffernotonlyspotcarbontradingbutalsocarbonderivativeswhichhelpimproveliquidityandpricediscovery.IntheEuropeanUnionestablishedthemultinationalEUEmissionsTradingSystemETS).SincethenanincreasingnumberofnationalandregionalETSshavebeenestablishedaroundtheglobeincludingnationalETSsinNewZealandandKorea,aswellaseightpilotregionalcarbontradingmarketsinChinaandtheRegionalGreenhouseGasInitiative(RGGI)andCaliforniaCap-andTradeProgramoftheUS.In2021,morenationalETSsweresetup,includingthoseintheUKandGermany,tofurtherpromoteemissionreductions.MandatorycarbonmarketsintheformofETSscoveredapproximately.9gigatonnesofglobalcarbondioxideequivalentCOeemissionsin2022,withtotaltradingvolumeonmajorglobalETSsreachinganestimatedmilliontonnesofCO2ein2021.Voluntarycarbonmarketsarealsodevelopingrapidly,with304milliontonnesofglobalcarbonoffsetsissuedinthefirsttenmonthsof2021andtradingturnoverreachingUS$2.0billionin2021.Chinaisbecomingincreasinglyprominentinglobalcarbonmarkets.Since2013,regionalcarbontradingmarketshavebeenlaunchedineightprovincesandcities―Shenzhen,Shanghai,Beijing,GuangdongTianjin,Hubei,ChongqingandFujian.InJuly2021,ChinalaunchedanationalETScoveringinitiallythepowersectorthatcoveredmorethan4billiontonnesofCO2eemissions,makingittheworld'slargestETSmarketbycoverage.Chinascommitmenttoachievingpeakcarbonemissionsby30,reachingcarbonneutralitybyandprovidingstrongpolicysupportforcarbontradingopensupmanyopportunitiesforHongKongByprovidingconnectivityforinternationalinvestorstoonshoremarkets,andviceversa,HongKongsstronginternationalstandingandregulatoryregimescouldallowittoplayasuperconnectorrolelinkingcarbonprojectswithinvestorslookingtodrivethelow-carbontransitionandallocatecapitaltogreenandsustainablefinanceprojects.HKEXannouncedthelaunchoftheHongKongInternationalCarbonMarketCouncilinJuly2022toexplorecarbonmarketopportunitiesintheregionandlaunchedCoreClimate,anewinternationalcarbonmarketplace,inOctober2022toconnectcapitalwithclimate-relatedproductsandopportunitiesinHongKong,MainlandChina,Asiaandbeyond.MoremarketstructuredevelopmentsandproductsareexpectedtobelaunchedtofurtherdevelopHongKongasapremiercarbontradinghub.2Theinternationalcommunityistakingactiontoreducegreenhousegas(GHG)emissionsandaddressclimatechange.Sincethe1990s,theUnitedNations(UN)hasorganisedaseriesofinternationalnegotiationsandinitiativessuchastheUnitedNationsFrameworkConventiononClimateChangeUNFCCC1992),theKyotoProtocol(1997)andtheParisAgreement(2015),toaccelerateactiononclimateissues.CarbondioxideCOreleasedfromtheburningoffossilfuelsisaprimarycauseofglobalwarming.Toreducecarbonemissions,theKyotoProtocolestablishedaframeworkforcarbonemissionstradingthroughwhichtheframeworkquantifiestherequiredreductionsinCO2emissionsthatmajorindustrialisedcountriesmustmakeandspecifieshowcarbonemissionallowancescanbecreatedandtradedinthemarket.TheKyotoProtocolmarkedthefirstcontractuallybindinginternationalagreementonGHGemissionreductionsTheagreementcoveredindustrialisedcountriesexcludingdevelopingcountriesthatcommittoreduceGHGemissionsby5%onaveragecomparedtothe1990levelsduringthefirstcommitmentperiod008-2012).Inthesecondcommitmentperiod13-2020),somecountriessetfurtheremissionreductiontargetswhileotherswithdrewtheiremissionreductioncommitments.TheParisAgreementwaspassedandadoptedin2015by196partiesafternegotiationsheldundertheUNFCCConmeasurestobetakenaftertheKyotoProtocol’ssecondcommitmentperiodendedinItestablishedasetofbindingproceduralcommitmentsbyeachsuptheirownNationallyDeterminedContributiononemissionreductionsbasedontheirowncircumstances,inlieuofmandatoryemissionsreductiontargetssetundertheKyotoProtocol.AccordingtoArticle6oftheParisAgreement,countriescanachievetheiremissionreductiontargetsthroughmarketmechanisms.Thisprovidesthebasisforestablishingtradingsystemstotransparentlyandefficientlyachieveglobalgoalsforemissionsreduction.Asaresult,emissiontradingsystems(ETSs)andvoluntarycarbonmarketshavegraduallydevelopedandexpanded.Inthesesystems,carbontradingunitsofmajorGHGintheformof“allowances”or“offsets”aretradedthroughamarket-basedmechanism.SincetheworldsfirstETSwaslaunchedin2005intheEuropeanUnion(EU)―theEUEmissionsTradingSystemEUETS),anincreasingnumberofETSshaveemergedindifferentjurisdictionsatdifferentlevels,rangingfromcities(e.g.Tokyo)tocountries(e.g.theUnitedStatesUS),CanadaandChina)andregions(e.g.theEU).AccordingtotheInternationalCarbonActionPartnership(ICAP),globalETSsinaggregatecovered17%ofglobalGHGemissionsandthegrossdomesticproduct(GDP)ofthecoveredregionsaccountedfor55%ofglobalGDP1attheendof2021.TheglobalcarbonmarketcanplayacriticalroleinsupportingglobalinitiativestocombatglobalwarmingandreduceglobalGHGemissionsInanETS,carbonallowancesarefirstlydistributedthroughfreeallocationand/orauctions.TheallowancescanthenbesoldintheETSbythosewithasurplusandboughtbythoseinneedofthem.Ascarbonmarketshavedeveloped,derivatives,suchascarbonfuturesandoptions,havebeenlaunchedonexchangeplatformsandoverthecounter(OTC)tradingvenues.TheseThedataofcarbonemissionswaslatestdatawithcut-offdateofJanuary2022andthedataofGDPwasupto2019or2020.missionstradingworldwideStatusreportissuepublishedonthewebsiteofICAP3productinnovationshaveaddedhedgingtoolsbroadenedparticipationandincreasedliquidityinthemarketsbybringinginmoreparticipantssuchasfinancialinstitutions.TaketheEUETSasanexampleIn2021,theEUETSwasthelargestcarbonmarketintermsoftradingvalueaccountingfor90%ofthetotalvalueofcarbontradingintheworld,includingsandfuturesturesoncarbonallowancesintheEUieEuropeanUnionAllowancesEUAshavealsoedonexchangesAccordingtotheFuturesIndustryAssociationFIAthetotaltradingvolumeofEUAfuturesonexchangesreached11.4millioncontractsin2021,makingitthemostactivelytradedcarbonfuturesproductintheworld.OntopofstringentregulationsandthedevelopmentoftheEUETSquotasystem,thesecarbonderivativeshavecontributedtotheimprovementofmarketmechanismstoreducecarbonemissions.hinaisbuildingacomprehensivecarbontradingsystemtohelpmanageanorderlyreductionofcarbonemissionsacrossthecountryandachievethegoaloftransformingtoagreenandlowcarboneconomyStartingfrom2013,thegovernmenthaslaunchedregionalpilotcarbontradingmarketsineightprovincesandcities―Shenzhen,Shanghai,Beijing,Guangdong,Tianjin,Hubei,ChongqingandFujian.InJuly2021,China’snationalemissionstradingscheme(referredtoas“ChinaETS”hereinafterofficiallystartedtradingcarbonallowanceswhilethedevelopmentofrelevantderivativesremainsintheplanningprocess.Asthevoluntarytradingofemissionoffsetsisregardedasaconstructivesupplementtothemandatorytradingofallowances,thecombinationofthesetwotradingmodelsmayimprovetheeffectivenessofcarbonemissionsreductionefforts.Thefollowingsectionswillexplorethedevelopmentofglobalcarbonmarketsandexchanges,analysethegrowthofcarbonmarketsinChinaandthendiscussthepotentialroleforHongKonginChinascarbonmarketthroughtheprovisionofawell-developedplatforminlinewithinternationalpracticesforcarbonspotandderivativestrading.MAJORGLOBALCARBONMARKETSANDEXCHANGES.1Typesofcarbonmarket5Globalcarbonmarketscanbeclassifiedintotwotypes:quota-basedandproject-based.Thesetwomarkettypesserveasthebasicfoundationforglobalcarbonemissionstrading.(1)Quota-basedmarketThequotabasedmarketisbasedonthe“cap-and-trade”mechanism.Governingauthoritieswillsetacaporupperlimit,onGHGemissionsforadefinedcomplianceperiod.Therearetwotypesofcap:(1)anabsolutecap―afixedquantityofallowedemissions,and)anintensity-basedcap―acaponapre-specifiedrateofemissionsrelativetoinputsoroutputsatthelevelofjurisdiction.Bysettingacaponemissionsthatthen2See“Carbonmarketyearinreview2021”,Refinitiv,31January2022.3AnEUAisdefinedinArticle3(a)oftheEUETSDirectiveasbeing“anallowancetoemitonetonneofCO2equivalent(CO2e)duringaspecifiedperiod,whichshallbevalidonlyforthepurposesofmeetingtherequirementsofthisDirectiveandshallbetransferableinaccordancewiththeprovisionsofthisDirective".4Source:CalculatedbasedonthetradingvolumesofEUAfuturesofindividualexchangesfromFIA’smonthlystatistics.See“Unlockingthepotentialofcarbonmarketstoachieveglobalnetzero”,jointlypreparedbytheGlobalFinancialMarketsAssociation(GFMA)andBostonConsultingGroup(BCG),publishedontheGFMA’swebsite,October2021.4declinesovertimeoracrosscomplianceperiods),acap-and-tradesystemcantheoreticallyguaranteethereductionofcarbonemissionlevels.Afterthecapisset,carbonemissionallowancesareallocatedtocoveredentitieseitherthroughfreeallocationoranauctionintheprimarymarket.Inthesecondarymarket,companiescanbuyandsellallowancestomeettheircompliancerequirements.Thetradingunitsofcarbonallowancesareusuallyequivalenttoonetonneofcarbondioxide(CO2e).(2)Project-basedmarketelineandcreditwhichisalsocalledanoffsettingmechanism.Underthismechanism,thereisnoexplicitcaponemissionsforajurisdiction/company.AcompanycanaimtoreducetheirGHGemissionstoacertainlevelbelowthelevelinabaselinescenario,whichisformulatedbythird-partyverifiersandmaytakeintoaccountthesectorthecompanyoperatesinandthetechnologyconstraintsitfaces.Carbonoffsetsalsoreferredtoas“carboncredits”)canbegeneratedfromeithertheavoidancereductionofemissionsorremovalsequestrationthrougheitherdirectactions(suchasforestationprojects)and/oremergingtechnologies(suchascarboncapture).Toverifytheeffectivenessofacarbonoffsetproject,theprojectplanordescription(sometimescalledProjectDesignDocument)isvalidatedbyanindependentauditorandtheimplementationisverifiedbyanotherindependentauditor,whowillsenditsreporttoastandard-settingbody(e.g.VerraandGoldStandard)ifthecriteriaaremet.Thesestandard-settingbodiesareresponsibleforverifyingprojectsforavoidanceand/orremovalofcarbonemissionsandissuingcarbonoffsetcertificates.Theyalsorecordthehistoricaldataofcarbonoffsetprojectsrecordswithinregistriesuntiltheretirementofcarbonoffsets.Carbonoffsetscanbeusedinsomejurisdictionstooffsetacompany’scarbonemissionquotaunderanETSoritsownvoluntarycommitments.ThetradingunitofcarbonoffsetsisusuallyonetonneofCO2e.Fromaregulatoryperspectivecarbonmarketscanbeclassifiedintotwotypesmandatorycarbonmarketsandvoluntarycarbonmarkets(VCMs).(1)Mandatory(orcompliance)carbonmarketMandatoryorcompliancebasedcarbonmarketsareakindofquota-basedcarbonmarketwithlegallybindingemissionreductionrequirementsfromentitiescoveredbytheETS.Coveredentitiescantradecarbonemissionallowances(orcarbonoffsetsacceptedinsomemarkets)tomeettheiremissionreductionrequirements.Mandatorycarbonmarketsarefragmentedacrossjurisdictions.Currently,carbonallowancesarerestrictedforuseonlywithintheirownjurisdictionandaregenerallynotfungibleacrossmandatoryGivenvaryingcarbonemissionregulationsacrossjurisdictionscarbonpricesdifferacrossItisthereforepossibleforentitiestoshiftthelocationoftheiroperationsand6Therearesomecasesofinteroperabilitybetweenmandatorymarkets,e.g.betweenETSsofCaliforniaandQuébecandbetweenETSsofSwitzerlandandtheEU.5emissionsfromonejurisdictiontoanotherthatoffersmorelenientemissionsrequirements,i.e.wherethecarbonpriceislower.Sshaveimplementedcarbonborderadjustmentmechanisms(CBAMs),whichincludetariffs,taxes,and/orrebatesonimportsandexports,tocompensatefordifferencesincarbonpricingacrossjurisdictionsandtoensurethatpollutingcompaniesdonotworkaroundemissionscontrolsandundulyburdendevelopingcountriesthathavecomparativelyweakerregulatoryregimes.nadditioncertainsectorsegemissionintensiveandtradeexposedsectorswithhigherriskofcarbonleakagethanotherswillreceivefreeallowancestocovertheirSandtheUnitedKingdomEmissionsTradingSchemeUKETS)havebothtakenthisapproach.(2)VoluntarycarbonmarketsVoluntarycarbonmarkets(VCMs)aretypicallyestablishedbycertaininternationalorganisationscountriesorenterprisesandunlikeETSs,maynotnecessarilyhavelegallybindingemissionreductioncommitments.VCMsmainlyhandlethepurchaseofcarbonoffsetsfromownersofemissionreductionrposeofvoluntarilyoffsettingtheirGHGemissionsSimilartomandatorymarkets,VCMsarefragmentedbecausetherearenouniversalstandardstoverifytheunderlyingprojects.ExamplesincludetheChicagoClimateExchange(CCX)andJapansVoluntaryEmissionsTradingScheme(JVETS)10.Theinteroperabilitybetweenmandatoryandvoluntarycarbonmarketsislimited.Ithasbeenreportedthat11existinglinkagesbetweenmandatoryandvoluntarycarbonmarketsonlyallowcoveredentitiestouseVCMcreditstomeetto10%oftheircomplianceobligations.InadditiononlyalimitednumberofmandatorymarketETSsacceptcarbonoffsetstomeetcomplianceobligationswheretheacceptablecarbonoffsetsareusually“high-quality”onesbasedonataxonomyforcategorisation.AnexampleisChina’sNationalETS,whichallowstheuseofChinaCertifiedEmissionReductions(CCERs)foroffsetting.ThecoveredentitiesofChina’sNationalETScanuseoffsetsforupto5%oftheircomplianceobligationsforCCERsgeneratedfromverifiedemissionreductionfromprojects(e.g.inrenewableenergyandcarbonsinks).PriortothelaunchoftheNationalETS,CCERswereusedforcomplianceinChina’sregionalpilotcarbontradingmarketsseeSection3.1).IssuanceofCCERshasbeenoncesuspendedafterMarch7,butthemarketexpectsitcouldberesumedaftertheplannedlaunchofanationalVCM7Forexample,inJuly2021,theEUannouncedaCBAMunderwhichimporterswillpurchasecertificatesthatwillcorrespondtoembeddedemissionswithinthegoodsbeingimportedintotheEU.ThepriceofCBAMcertificateswillmirrorthepriceofcarbonwithintheEUETS.TheimportersofgoodsfromjurisdictionswithlowercarbonpriceswillsurrenderaportionoftheirpurchasedCBAMcertificatestoensurethecarbonpriceembeddedinthesegoodsequalsthetotalcarbonfeeforcomparablegoodsproducedunderthejurisdictionoftheEUETS.8See“Allocation”webpagepublishedbyICAP.9See“Voluntarycarbonmarkets:Howtheywork,howthey’repricedandwho’sinvolved”,publishedonS&PGlobal’swebsite,21June21.JVETSallowsvoluntaryparticipationbutparticipatingcompaniesareobligedtomeetpreviouslysetemissiontargets.See“Japan’svoluntaryemissionstradingschemeJVETS”,publishedonthewebsiteofJapan’sMinistryoftheEnvironment,May2011;EnvironmentalDefenseFund(EDF),CDCClimateResearchandInternationalEmissionsTradingAssociation(IETA),“Japan:AnemissionstradingcasestudypublishedontheEDF’swebsite,May2015.11See“Unlockingthepotentialofcarbonmarketstoachieveglobalnetzero”,jointlypreparedbytheGFMAandBCG,publishedontheGFMAswebsite,October2021.6latforminBeijingInAugustChinaBeijingEnvironmentalExchangestartedtheconstructionofatradingsystemandaregistrationsystemforCCERs13.OverviewoftheglobalcarbonmarketAroundtheworld,anumberofcountriesarecommittedtoaddressingclimatechangeandprogressingthelow-carbontransition.TheEU,theUnitedStates(US)andtheUnitedKingdom(UK)haveannouncedcarbonneutralityornet-zeroemissiontargetsby2050.InAsia,threemajorcountries―China,JapanandKorea―havealsocommittedtocarbonneutrality.Inparticular,Chinaannounceditstargetofreachingpeakcarbonemissionsby2030andachievingcarbonneutralityby2060.Giventhesetargetsagrowingnumberoflocalornationalgovernmentshaveestablishedtheirownmandatorycarbonmarketstoreducecarbonemissionsthroughmarketmechanisms,SsasapolicytoolforenergyconservationandemissionreductionIntheEUestablishedthemultinationalEUETS.SincethenanincreasingnumberofnationalandregionalETSshavebeenestablishedaroundtheglobeincludingnationalETSsinNewZealandandKorea,aswellaseightpilotregionalcarbontradingmarketsinChinaandtheRegionalGreenhouseGasInitiative(RGGI)andCaliforniaCap-and-TradeProgramoftheUS.InmorenationalETSsweresetupincludingthoseintheUKandGermany,tofurthernreductionsTheETSinChinawaslaunchedandcommencedtradinginJuly2021.TheUScurrentlyhasregionalETSsonlybutnonationalETS.TSsdevelopedacrosstheworldcoversectorswithhighcarbonemissionssuchaselectricityindustrialsconstruction,transportationandaviation.Intermsofoperations,thegovernmentsetslimitsontotalcarbonemissionsandallocatestradeablecarbonemissionallowancestocompaniesincludedinthetradingsystem.Coveredcompaniesneedsufficientallowancestocovertheiractualcarbonemissionsduringacomplianceperiodmostlyoneyear).Wheretheirallocatedallowancesfallshortoftheirneed,theyhavetobuyallowancesinthesecondarymarketthroughanETS.Ontheotherhand,othercompaniesmayhaveasurplusofallowancesduringtheperiodforsale.Coveredcompanieswouldtakeintoconsiderationtheiremissionreductioncostsandtradetheirowncarbonemissionallowanceswithotherentities.Inthisway,coveredentitieswouldbeabletomeettheemissionlimitsasrequiredatthelowestcostthroughmarketmechanisms.InthetotalamountofcarbonemissionscoveredbyglobalETSsincreasedtoapproximately8.9gigatonnesofCO2efromapproximately2.1gigatonnesofCO2ein2005,witha17-yearcompoundannualgrowthrate(CAGR)of8.8%(seeFigure1).12Source:AnnouncementoftheNationalDevelopmentandReformCommissionofPeople’sRepublicofChina2017(No.2)(《中華人chyImplementationPlanForBuildingaModernEnvironmentalGovernanceSystem境治理體系的實(shí)施方案》),issuedbyGeneralOfficeoftheBeijingMunicipalCommitteeoftheCommunistPartyofChinaandtheGeneralOfficeoftheMunicipalPeople'sGovernmentofBeijing,10March2021.See“PublictenderontheregistrationsystemandtradingsystemforCCER”(〈全國溫室氣體自願(yuàn)減排註冊登記系統(tǒng)和交易系統(tǒng)的公,T,17August2022.See“Climatechangeandcarbontrading:Understandingseveralbasicconceptsincludingcarbonemissionrightsandquotas”,publishedonthewebsiteofBritishBroadcastingCorporation17July2021.TheUKETSwasestablishedafterBrexitandUK’semissionreductiontargetshadbeenseparatedfromthoseoftheEUsincethen.TheETSinGermanycoverscompaniesthatarenotcoveredbytheEUETS.ThegrowthofglobalcarbonmarketsandopportunitiesforHongKong10January202372005200620072008200920102011201220132014201520162017201822005200620072008200920102011201220132014201520162017201820192020202120FigureFigure1.TotalcarbonemissionscoveredbyglobalETSs(2005–2022)tCOe987654329.0NoteChinaETSwaslaunchedin2021alongwiththefirstcomplianceperiodandretrospectivecompliancerequirementsfor2019and2020.Theallowancesforthesecarbonemissionsareincludedinthedata.SourceEmissionstradingworldwide:Statusreport”,2022issue,publishedonthewebsiteofICAP.HowevertheproportionoflocalcarbonemissionsofcompaniescoveredbyanETS(i.e.ratioofemissionscoveredineachmajorcarbonmarketvariessignificantlypartlyduetopolicymakersmayconsiderothercarbonreductionpolicies(e.g.carbontaxes)basedontheirowncircumstancesandobjectives.Asofend-2021,theratioofemissionscoveredbyglobalETSswas17%,withthehighestofforQuébecETSinCanadaandthelowestof10%inSwitzerland(seeTable1).ThecoverageofcarbonemissionthroughETSsmayincreaseovertimeasmorecountriesplannedorconsideredsettingupnewETSs16andmoresectorsorcompaniesareexpectedtobecoveredbyexistingETSs(e.g.China17).Table1.MajorETSsaroundtheglobeYearofishmentissionscovered)l589%9TokyoJapan0nd3forniaUS3becCanada3naregionalpilots–20161%5TS14%110%PilotregionsinChinacompriseBeijingGuangdongShanghaiShenzhenandTianjin3),ChongqingandHubei(2014)andFujian(2016).Source:“Emissionstradingworldwide:Statusreport”,2022issue,publishedonthewebsiteofICAP.See“MoreCountriesArePricingCarbon,butEmissionsAreStillTooCheap”,IMFBlogpublishedonInternationalMonetaryFund’swebsite,21July2022.See“Carbonmarketeyesstabilityinthelongrun”,publishedontheMinistryofEcologyandEnvironment’swebsite,16AugustThegrowthofglobalcarbonmarketsandopportunitiesforHongKong10January20238acticethegovernmentallocatescarbonallowancestocoveredcompaniesthroughanAuctionsofcarbonallowancesintheprimarymarketonmanyETSsareconductedthroughexchangeplatforms,whichallowcompanies,brokersandfinancialinvestorstoparticipatesoastoincreasethepricediscoveryofcarbontrading.orinstancecarbonallowanceauctionsinEUETSareconductedontheEuropeanEnergyExchangeEEXTheresultsoftheauctionsarerecordedintheregistriesofETSs,e.g.theUnionRegistryoftheEUETS.GovernmentstendtouseauctionrevenuesfromETSstofundclimatechangeprojectsinareasincludingenergyefficiencyimprovementlow-carbontransportationandrenewableenergydevelopmentandutilisation.Auctionrevenuescanalsobeusedtosupportenergy-intensiveindustries,aswellastosupportvulnerableandlowincomegroupsBetween2008and2021,carbonallowanceauctionsintheglobalcarbonmarketraisedoverUS$161billion18(seeTable2).CompaniescantradetheircarbonallowancesnotonlybilaterallyintheOTCmarket,butalsowithothertypesofmarketparticipantsonexchanges.Theseexchangesmayprovidefutures(includingspotcontracts)andoptionsforcarbonallowancesandcarbonoffsets.CarbonproductshavedevelopedrapidlyintheEuropeanandAmericanexchanges.TransactionsofcarbonallowancesonexchangesarealsorecordedintheregistriesofETSs.Table2.AuctionsofcarbonallowancesinmajorcarbonmarketsAnnualrevenuefromauctions(US$mil)Yearoftheirstauctioniventraisedl1718192021.21.549ia3,018.03,065.343ilotregionsn.a.n.a.n.a.n.a.n.a.3nd85345.03,387n.a.n.a.n.a.n.a.n.a.8n.a.n.a.479n.a.:Notavailable.Source“Emissionstradingworldwide:Statusreport”,2019-2022issues,publishedonthewebsiteofICAP.PricesofcarbonallowancesinthemajorETSsintheglobalmarkethavebeenonanupwardtrendinrecentyears.Thatsaid,priceshavedivergedbetweenjurisdictions,possiblyduetodifferentemissionsreductionpoliciesbetweenlocationsseeFigure2)19.SourceEmissionstradingworldwideStatusreportissuepublishedonthewebsiteofICAP.Majorcarbonmarketshaveimposedpenaltiesonnon-compliancecompaniesforthedeficitsofcarbonallowances,e.g.EURtonne(aboutUS$114)forEUETS,KRW100,000/tonne(aboutUS$85)forKorea’sETSand3timestheprevailingcarbonallowancepricerespectivelyforETSsinNewZealand,CaliforniaandRGGIintheUSandQuébecinCanada.TheregionalETSsinChinaspilotareashavedifferentpenaltyrules,rangingfromnomonetaryfineto5timestheprevailingcarbonallowanceprice,anditsNationalETSimposesafixedfineofRMB20,000toRMB30,000(aboutUS$3,000-US$5,000)fornon-compliance.SourcefactsheetsofrespectiveETSs,publishedonthewebsiteofICAP,viewedon26July2021.900