Once trading begins on the national market in 2020 or so, it appears China plans to conduct it using spot trading: regular trading between firms on a carbon trading exchange. This excludes the use of financial derivatives such as carbon futures trading, the mechanism by which companies can speculate on the market by buying and selling the right to future permits at guaranteed prices.
Xie Zhenhua, China’s special representative for climate change, ruled out carbon futures trading in November, saying China’s scheme is intended to create a cost for emitting carbon rather than a platform for market speculation.
Sophie Lu, an analyst at Bloomberg New Energy Finance in Beijing, told Bloomberg in December:
“After several false starts and shifting priorities and nervousness around whether or not carbon speculation will make policy enforcement difficult, the regulators have decided to be even more cautious about the market deployment.”
Swartz is among those who say carbon futures trading should be included in the scheme. He tells Carbon Brief it would create additional liquidity in the market and allow a real carbon price to emerge. He notes that China is exploring the use of futures trading and will likely first start with a pilot carbon futures trading system in one region before allowing it across the entire ETS.