BEIJING - China's Shenzhen will impose sanctions on companies that fail to comply with targets under the city's carbon trading scheme, an official said according to a local media outlet, despite criticism about the rules.
The Shenzhen government, hosting the oldest of China's six pilot carbon trading markets, last week arranged a special CO2 permit auction to help local emitters meet their targets for 2013 by the June 30 deadline.
But only around a third of the permits on offer were picked up, with some of the 635 scheme participants saying they didn't participate because they were unhappy about scheme rules and planned to appeal to the government about how their emission targets had been set.
Guangdong province faces a similar situation in its market, casting doubt over China's ability to enforce targets in its carbon markets, the main policy tool to cut climate-changing greenhouse gases in the world's biggest-emitting nation.
"Non-compliers will be asked to pay a fine of three times the market value (of each permit they fail to hand over to the government)," Zhou Quanhong, head of the Shenzhen government carbon trading office, told a conference on Tuesday, according to news service provider Crystal Carbon.
He said those who failed to pay a fine would be dealt with by the court, and that violators would have their lending credibility downgraded and lose any subsidies or preferential fiscal treatment they might receive.
The government did not immediately respond to questions regarding Zhou's comments, but they were confirmed by several sources who participated at the conference.
Zhou's message was seen by market players as sending a strong message that the government intends to ensure the scheme is properly implemented and reassure traders that market regulations would be upheld.
Nearly half of all emitters covered by the Shenzhen emissions market face a shortage of permits to meet 2013 targets, according to the government, although data released on Tuesday said the 635 companies cut their emissions by 11 per cent, or around 3.7 million tonnes, last year.
Last week's auction offered permits at half the market price, but Zhou confirmed on Tuesday the government would not hold any more auctions, forcing emitters to meet targets by buying permits in the secondary market.
The 2013 permits last traded Wednesday at 70 yuan (S$14.06), up half a yuan on the previous day.
But finding sellers could be a challenge for buyers, who only have 19 days to get their books in order.
Liquidity in the scheme is poor with only a handful of thousand permits trading each day. Some 12,000 permits changed hands on Wednesday.
The China Emissions Exchange, which hosts trading of permits in the Shenzhen market, on Wednesday began offering trading of 2014 permits. Bids and offers opened far apart, with the first trade going through in the afternoon at 60 yuan, but only for a single permit.
The government has issued 33 million permits for 2014, according to the exchange.