Download → The Growth of Global Carbon Markets and Opportunities for Hong Kong

SUMMARY

As the international community takes action to reduce greenhouse gas emissions and limit climate change, emissions trading systems and voluntary carbon markets are rapidly expanding. These market mechanisms, where carbon units in the form of “allowances” or “credits” are traded, increasingly offer not only spot carbon trading but also carbon derivatives which help improve liquidity and price discovery.

In 2005, the European Union established the multinational EU Emissions Trading System (ETS). Since then, an increasing number of national and regional ETSs have been established around the globe, including national ETSs in New Zealand and Korea, as well as eight pilot regional carbon trading markets in China and the Regional Greenhouse Gas Initiative (RGGI) and California Capand-Trade Program of the US. In 2021, more national ETSs were set up, including those in the UK and Germany, to further promote emission reductions.

Mandatory carbon markets, in the form of ETSs, covered approximately 8.9 gigatonnes of global carbon dioxide equivalent (CO2e) emissions in 2022, with total trading volume on major global ETSs reaching an estimated 15,773 million tonnes of CO2e in 2021. Voluntary carbon markets are also developing rapidly, with 304 million tonnes of global carbon offsets issued in the first ten months of 2021 and trading turnover reaching US$2.0 billion in 2021.

China is becoming increasingly prominent in global carbon markets. Since 2013, regional carbon trading markets have been launched in eight provinces and cities ― Shenzhen, Shanghai, Beijing, Guangdong, Tianjin, Hubei, Chongqing and Fujian. In July 2021, China launched a national ETS covering initially the power sector that covered more than 4 billion tonnes of CO2e emissions, making it the world's largest ETS market by coverage.

China’s commitment to achieving peak carbon emissions by 2030, reaching carbon neutrality by 2060 and providing strong policy support for carbon trading opens up many opportunities for Hong Kong. By providing connectivity for international investors to onshore markets, and vice versa, Hong Kong’s strong international standing and regulatory regimes could allow it to play a superconnector role linking carbon projects with investors looking to drive the low-carbon transition and allocate capital to green and sustainable finance projects.

HKEX announced the launch of the Hong Kong International Carbon Market Council in July 2022 to explore carbon market opportunities in the region and launched Core Climate, a new international carbon marketplace, in October 2022 to connect capital with climate-related products and opportunities in Hong Kong, Mainland China, Asia and beyond. More market structure developments and products are expected to be launched to further develop Hong Kong as a premier carbon trading hub.