Hubei cement companies likely to pay millions to meet carbon obligations

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China: According to Reuters, Chinese cement companies, including Huaxin Cement, covered by the carbon market in Hubei Province will likely be forced to spend millions of Chinese Yuan on permits before the compliance deadline on 10 July 2015 after authorities rejected their pleas for leniency.

In June 2015, the companies asked regulators to let them borrow some permits from the 2016 quota, saying that they could not afford to buy permits to cover their obligations for 2014. However, their requests were rejected, easing market concerns that big emitters would be let off the hook.

Huaxin Cement, Hubei's biggest cement producer, has been under particular pressure to buy over the last few trading days as it has a shortfall of 1.15 million permits. "Local officials have talked through the consequences of non-compliance with cement plants, so Huaxin Cement approved a US$6.44m budget to pay for permits," said a trader who did not want to be named as he was not authorised to speak to media.

Trading volumes on the Hubei carbon exchange have surged ahead of the deadline in the absence of any indication that the compliance date, initially set for 31 May 2015, would be pushed back for a second time. As of 9 July 2015, 44 companies, or 32% of the total 138 firms, did not have enough permits to cover their obligations. Of these, 26 were cement producers. A manager with Gezhouba Cement Group, Hubei's second-largest cement producer, said that its permit allocation had been miscalculated.

Companies covered by the Hubei exchange are only obliged to buy a maximum of 200,000 permits, regardless of how much they overshoot their cap. However, Gezhouba has eight subsidiaries in the scheme, bringing its total permit demand to more than a million. "The scheme is punishing big producers, but not inefficient competitors," said the Gezhouba manager. "We pleaded with the government to re-issue permits and narrow the gap, but we have not got any reply. How can we spend tens of millions on carbon?"