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Chinese cement producers to default on carbon obligations

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World Cement,

According to market sources, cement producers in China's Hubei province have informed the local government that they cannot afford the payment to purchase permits covering mitigation obligations for 2014 and may default.

The cement producers’ refusal to buy the permits would call into question China's ability to force companies to comply with carbon targets and also undermine efforts to control greenhouse gas emissions.

The 138 companies covered by the Hubei exchange must turn over carbon permits to the government this month. The exchange is to settle their obligations for last year. Approximately a quarter of the companies are cement firms. These organisations are unhappy with the number of credits they were allocated.

As the economy slows and the construction sector continues to struggle, the organisations are facing high environmental compliance costs at the worst possible time. For example, Chinese cement production dropped 4.8% in the first four months of 2015.

Huaxin Cement is 1.15 million permits short of meeting its mitigation targets.

Carbon permits in Hubei are trading at 27.5 yuan so it could therefore cost the firm 31.63 million yuan to cover its shortfall.

Penalties for defaulting 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.

Edited from source by Joseph Green. Source: Reuters

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