China: Hubei producers may default on carbon obligations

Cement producers participating in the carbon market in China's Hubei province have told the local government they cannot afford the millions of yuan required to buy permits to cover mitigation obligations for 2014 and may default,  according to a document seen by Reuters.

The 138 companies covered by the Hubei exchange have to hand over carbon permits this month to settle their obligations for last year. Around a quarter are cement firms, who complain they were not allocated enough credits, Reuters reports.

"They are in talks with the government to gain immunity from non-compliance penalties and are asking to borrow some permits from next year's quota," a broker with knowledge of the situation told the news agency.

Huaxin Cement, the biggest local producer, is 1.15 million permits short of meeting its mitigation targets, according to the document.

"Hubei is generally oversupplied, but the distribution is not balanced. Most of the power sector is overallocated, but the cement and chemical sectors are short," said another broker. "Those facing a big gap are not attempting to buy from the market. They are pushing the government for a compromise."

Penalties for non-compliance could include a deduction in permits for next year plus a fine of up to three times the value of the obligations in default, although that is capped at 150,000 yuan.