(Bloomberg) -- China’s tightening supply of carbon permits is likely to raise renewable energy demand and hasten the demise of inefficient coal-fired power plants.  

The carbon price topped 100 yuan ($13.80) on Wednesday for the first time since the market launched in mid-2021, ahead of new rules that would reduce free emissions allowances and limit the number that can be carried over into the following year. 

The prospect of fewer permits, and a plan to allow new entrants to the market, are driving prices higher, said Song Yutong, an analyst with the London Stock Exchange Group.

China’s carbon market has drawn criticism for being too lenient in imposing carbon costs on polluters and prices flatlined for a long time. The environment ministry’s draft plan would be a significant step toward addressing that as it prepares to enlarge the market beyond power producers. 

Aluminum and cement are likely to be in the first wave of an expansion that will cover about 70% of the nation’s emissions by 2030, a move that could see prices hit 200 yuan a ton, according to the Beijing Institute of Technology. That will put a premium on clean energy and incentivize industry to shun higher-cost fossil fuels.

“Leading aluminum and cement producers have been preparing to be included in the national carbon market for several years,” Fitch Ratings said in a note. “Many have been reducing their carbon footprints to curb potential rises in costs from a probable cap on emission allowances.” Aluminum smelters have already shifted a lot of capacity to Yunnan, a province well served by hydropower, Fitch said.

Carbon prices in China are still just a fifth of comparable costs in the European Union, where the market is more mature. But the gap will only keep narrowing if Chinese exporters are pressured to comply with EU carbon tariffs that come into effect in 2026. 

On the Wire

A UBS analyst who took on Evergrande is now bullish on China property.

China’s April PMIs will probably signal the recovery continued — albeit at a slower pace, according to Bloomberg Economics.

Chinese travel sentiment is rebounding before the extended Labor Day holiday, according to Bloomberg Intelligence.

Analysts upgraded their forecast for China’s growth this year after a better-than-expected performance in the first quarter — but they see more signs that the world’s second-biggest economy will struggle to escape from deflationary pressures. 

The Week’s Diary

(All times Beijing unless noted.)

Thursday, April 25:

  • US Secretary of State Antony Blinken visits China
  • Beijing Auto Show, through May 4
  • SMM aluminum conference in Chongqing, day 2
  • China Coal earnings call, 15:00
  • Cnooc earnings call, 17:35
  • EARNINGS: Cnooc, China Oilfield, TCL Zhonghuan, Chalco, Jiangxi Copper

Friday, April 26:

  • US Secretary of State Antony Blinken visits China
  • China weekly iron ore port stockpiles
  • Shanghai exchange weekly commodities inventory, ~15:30
  • EARNINGS: Baosteel, Hesteel, GEM, Anhui Conch, Shenhua, Goldwind

Saturday, April 27

  • China industrial profits for March, 09:30

Sunday, April 28

  • China Industrial Silicon Supply Chain conference in Xiamen, Fujian, day 1
  • EARNINGS: Sinopec, Ming Yang, Tongling Metals

--With assistance from Kathy Chen.

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