The EU carbon market – 19.01.2022

EU Allowances (EUAs) have endured volatile weeks at the beginning of January with prices bouncing between €78.85 (18.01) and €87.15 (05.01), with significant daily price movement >€3.

EU Legislative Proposals

Policy was once again in the news, firstly following a leaked draft amendment on Wednesday, 12.01.2022, that appeared to suggest the inclusion of shipping, buildings and road transport should be included a year earlier, and then the EU Parliament’s environment committee backed a proposal to keep the Market Stability Reserve (MRS) withdrawal rate at 24% (it was due to fall back to 12%).

This bullish policy news, coupled with the announcement that EDF expects to generate less nuclear fired power in 2022 after faults were discovered in several of its plants, pushed EUAs up to an intraday high of €83.75 on 14.01.2022, then falling back to €82.67, the ICE ECX closing price of yesterday, 18.02.

Whilst the chance of prices returning to €90 seems to be reducing as the demand outlook softens (less investor appetite), the EU carbon market is trading on much lower volumes currently which does make it susceptible to sharp price rises and sensitivity towards news and events that impact the energy complex.

Source: ICE ECX, Carbon Pulse & CFP London
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The CO2 Market – 24.11.2021

EUAs rise to new high above €72

EUAs rose to a new record reaching €72.91, the closing price on the ICE ECX exchange from London on 24.11.2021, ignoring weaker gas and power markets that reacted to growing concern over rising Covid-19 infection numbers and growing social unrest over renewed public restrictions in a number of countries.

EU watchdog: “no proof of carbon market manipulation”. Truth or manipulation?

In a preliminary report published on 19.11.2021, the European Securities and Markets Authority (ESMA) found no proof of illegal market speculation in the EU’s carbon trading market (the emissions trading system, EU ETS).

In October, the European Commission asked ESMA to track any possible market manipulation after accusations hedge fund speculators drove up prices in Europe. The move is part of a toolbox of policies against soaring energy prices.

ESMA found 455 financial entities and investment firms took part in the EU ETS market in 2021, up 86 percent from 2018. ESMA’s findings attribute the surge in the price of carbon allowances to normal market behaviour, driven by a faster-than-expected reduction in emissions allowances and increased demand and sharp volatility of energy commodities.

Although no proof of foul play has been found, the watchdog noted that it had only limited access to essential data. The Intercontinental Exchange (ICE), where most carbon was traded until June 2021, fell under the UK’s Financial Conduct Authority, and due to Brexit, ESMA could not access this data.

We remain reticent about the EU watchdog findings as most probably 50% of the data of the EU ETS trades have not been analyzed due to lack of the access to the data. Starting with 2019, the EU ETS market has been included into the financial market within MIFID II directive, and the interest of investment funds into this market has been, therefore, increased. This fact is shown by increasing number of players on this market (86% higher than the previous year, 2018). The rise in demand is determined, consequently, by the financial game of the new capital funds and less by new polluting installations, which should normally have been those who buy these carbon allowances. Where will this practice go? Probably, at a price of over 100 euro/tCO2 so that the national energy industry collapses as soon as possible and we become dependent on the import of energy and gas.

Source: ICE ECX and World Bank

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The CO2 Market – 21.10.2021

EUA Price Forecast

The EUA price shows a higher volatility in October plunging from 64.64 euro/tCO2 the highest level on 5th October to 54.52 euro/tCO2 on 19th October and raising up to 57.64, closing price from 20th October. We are reticent in making any predictions on the CO2 price in the forthcoming days and believe that this characteristic of volatility will continue to maintain uncertainty on the market which is highly linked to the energy and gas prices and often to political decisions and declarations by the European Commission and Member States.

Reuters survey of eight analysts have raised their European carbon market average price forecasts after soaring global gas prices led some electricity generators to switch to more polluting coal-fire power, ramping up demand for carbon permits.

EU Allowances (EUAs) are expected to average the following prices:

  • 55.88 euros a tonne in 2021
  • 69.87 euros in 2022 (up 7.4% and 12.1% respectively from forecasts made in July)
  • 72.04 euros a tonne in 2023 (representing a 16.8% increase)

At the same time, The World Energy Outlook 2021, released this month, also calls for an “international catalyst” to address a shortfall in clean energy investments in developing countries. It also predicts that carbon prices in developed countries will rise to an average of $250 per tonne of CO2, and $200 in China, Brazil, Russia and other major economies, under a scenario in which the world achieves Net Zero emissions by 2050.

Source: Reuters & International European Agency

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The CO2 Market – 07.09.2021

EUA sets  new record high: 63 euro/tCO2

EUA prices surged their fifth record in seven sessions on Monday, 06.09.2021, while gas and power also reached new all-time highs, as speculation over gas flows from Russia continued to dominate the European energy complex. Thus, carbon prices were supported by increased gas prices, which gave corresponding signals out of concerns about the supply from Russia and the new Nord Stream 2 pipeline.

The prices for CO2 emission rights jumped above the 60 euro mark for the first time in the last trading week and defended them until the end of the trading week on 3rd September. On Monday morning, 6th September, the market opened with a clearly positive signal, having already exceeded the mark of 63 euros per EUA in early trading. At the time of writing (7th September, 10.00h), EUA is 62,07 on the ICE ECX exchange.

The fact that the normal volume of 11,418,000 EUA has been up for auction this week has not yet slowed the market down, but demand for the auctions should remain interesting.

Beatriz Yordi, Director of the European Commission for European and International CO2 Markets, commented at a video conference on the latest reform of the EU emissions trading system in relation to last week’s price increase, saying that “the market is working and that a corresponding decarbonisation send a signal to the economy.” In addition, Yordi said that “you have to stay calm at the current prices above 60 euros. Market intervention to lower prices is therefore currently unlikely, even if it would certainly find supporters in some EU countries”. We wonder how managers of polluter companies have such a calm attitude when they know that they need to buy hundreds of thousands of CO2 allowances.

Source: Carbon Pulse, London & Advantag Brokerage, Germany

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The CO2 Market – 04.08.2021

The EUA price on London based exchange ICE ECX closed on 03.08.2021 at 54.30 euro/tCO2, reaching above 55 euro in the trade day.

EUA Price Trend

EUA markets have started August on a strong note, trading above 55 €/t as low auction volume and strong complex finally brought the market to react in strength after a strongly under performing July. With the holidays season having started, we expect reduced trading activity in a general bullish environment where next technical resistance target for Dec-21 contracts of EUR 56 to be potentially challenged. If broken, the early July high of 57.9 is the next target.  Strengthening economic signals are confirming this point of view for the time being, however short-term Covid concerns ought not to be discounted from potential harm on European markets.

IEA states that only 2% of governments’ recovery spending is going to clean energy transitions

The new Sustainable Recovery Tracker of the International Energy Agency measure how much clean energy investment is mobilised by the massive economic recovery packages that governments enacted in response to the Covid-19 crisis. The initial findings make clear the need for governments to step up their efforts rapidly.

So far, only about 2% of economic recovery spending has been allocated to clean energy transitions. While it’s understandable that government spending initially went towards public health and immediate economic relief, investment in sustainable energy measures will have to rise dramatically if countries are going to reach their climate targets. Under current government recovery spending plans, global carbon dioxide emissions are set to climb to record levels in 2023 and keep rising in subsequent years.

Source: ICE ECX, London & IEA, Paris


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The European CO2 Market – 19.07.2021

The EUA price on London based exchange ICE ECX opened on 19.07.2021 at 52.89 euro/tCO2, amid the anticipation of strong support of gas and power markets.

Renewable Energy Directive Recast

The Renewable Energy Directive will set an increased target to produce 40% of our energy from renewable sources by 2030. All Member States will contribute to this goal, and specific targets are proposed for renewable energy use in transport, heating and cooling, buildings and industry. In addition, sustainability criteria for the use of bioenergy are strengthened and Member States must design any support schemes for bioenergy in a way that respects the cascading principle of uses for woody biomass.

The RED proposal includes reinforced provisions for efficient district heating. Member States are required to increase their share of district heating. In addition, renewable energy and waste heat shares in DHC heat must be increased. To achieve this, third party access to renewable energy or waste heat, with some exceptions.

As concerns the role of CHP, the RED proposal does require Member States to ensure energy efficiency first in generation, transmission and distribution of renewable energy sources, as part of their authorisation criteria.

German car manufacturers fined $1 billion over emission collusion in EU

A recent news article on the Kleanindustries website discusses a fine imposed by the European Commission on major German car manufacturers on holding back the use of technical developments, not a more traditional practice like price fixing.

Daimler, BMW and Volkswagen along with its Audi and Porsche divisions avoided competing on technology to restrict pollution from gasoline and diesel passenger cars, the EU’s executive commission said. Daimler wasn’t fined after it revealed the cartel to the European Commission.

It was the first time the European Commission imposed collusion fines on holding back the use of technical developments, not a more traditional practice like price fixing.

Source: Cogen Europe & Energy in Demand

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The CO2 Market – 13.07.2021

The EUA price on London based exchange ICE ECX opened on 13.07.2021 at 51.68 euro/tCO2, as gas and power markets turned lower and traders looked ahead to Wednesday’s, 14.07., unveiling of EU ETS reform proposals.

Brussels plans inclusion of int’l shipping in EU ETS from 2023, price curbs for transport and buildings -draft

The European Commission is planning carbon market reform proposals that would adjust downwards the scheme’s annual cap cut earlier than originally foreseen. The EU’s upcoming carbon market reform proposal will seek to place further conditions on free allowance allocation to energy-intensive industries, according to sources familiar with the draft document.

The  Commission is also planning to bring international shipping into the EU ETS from 2023, with a transition period ramping up emissions coverage for the sector thereafter, according to a leaked draft, which also outlines measures to contain price spikes in a separate trading system for buildings and transport.

German energy exchange launches zero-carbon shipping index

German energy bourse EEX on Monday, 12.07.2021, launched a Zero Carbon Freight Index that it said will allow players in the dry freight market to measure how carbon costs will affect them.

French govt advisors suggest creation of EU carbon central bank

Several economic advisors to the French government have suggested an EU carbon central bank as an alternative to a price corridor to manage long-term carbon cost stability, according to a paper released on Friday.

Europe’s ‘Fit for 55’ climate package: What to expect

The package consists of 13 legislative proposals – some new and others revisions of existing laws. Here’s what to expect:

Updates to existing EU laws:

·       Revision of the EU emission trading scheme (EU ETS)

·       Revision of the regulation on land use, land use change and forestry (LULUCF)

·       Revision of the effort sharing regulation (ESR)

·       Amendment to the renewable energy directive (RED)

·       Amendment to the energy efficiency directive (EED)

·       Revision of the alternative fuels infrastructure directive (AFID)

·       Amendment of the regulation setting CO2 emission standards for cars and vans

·       Revision of the energy taxation directive

New legislative proposals:

·       New EU forest strategy

·       A carbon border adjustment mechanism (CBAM)

·       A Climate Action Social Facility

·       ReFuelEU Aviation – on sustainable aviation fuels

·       FuelEU Maritime – on greening Europe’s maritime space

Source: The European Commission, Brussels; Carbon Pulse and Energy in Demand, London

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The Carbon Market – 29.06.2021

The EUA price on London based exchange ICE ECX opened on 29.06.2021 at 55.20 euro/tCO2, continuing its 5 weeks increase.

“Despite a week-long rally that has added more than 6% to EUA prices, carbon needs to rise even higher in order to restore natural gas’ advantage over coal in EU power generation”, updated news from Carbon Pulse 28.06 show.

EU ETS Free allocation up to €50 billion from 2008 to 2019

A new CE Delft study published on 7th June 2021 shows that the energy-intensive industry across Europe has profited up to €50 billion from 2008 to 2019 as a result of the free allocation of pollution permits under the EU Emissions Trading System (EU ETS).

The findings in the report from independent environmental consultancy CE Delft highlight the need to end this market failure as the EU carbon market rules are revised.

The sectors profiting most from pollution payouts are iron and steel, refineries, cement and petrochemicals sectors.

The report covers 18 EU countries and the United Kingdom. Most profits were generated in Germany, the UK, France, Italy and Spain.

The report identified three ways in which industry has secured a total of up to €50 billion windfall profits through the scheme from 2008 to 2019:

  • Companies passed through the “costs” of freely obtained emission allowances in the product price, paid for by the end-consumer. For example in the iron and steel sector (€12- 16 billion) and refineries (€7 – 12 billion);
  • Companies were awarded too many free emissions allowances that they could sell for a profit on the market. For example in the cement sector (€3.1 billion) and petrochemical sector (€600 million);
  • Companies bought cheaper international offsets (until 2020) to comply with their targets and were able to sell remaining free allowances for a profit on the market. For example in the iron and steel sector (€850 million), refineries (€630 million) and cement (€610 million). These amounts should have been used to modernise the technology, in order to reduce the CO2 emissions, but they were ofen redirected to pay debts of companies.

More information on CE Delft analysis: Additional profits of sectors and firms from the EU ETS 2008-2019.

Source: Carbon Market Watch, Brussels

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EU ETS News in June

EUAs climbed above €53 on Wednesday, 23.06.2021, gaining steadily for a third straight day as energy prices moved higher and buyers were not put off by a weaker auction result.

EU plans new social fund from expanded carbon market

The European Commission will create a ‘climate action social fund’ with revenues from an expanded carbon market if it decides to bring emissions from vehicles and buildings under the EU ETS, the bloc’s climate chief Frans Timmermans said. The discussions to include in the EU ETS the transport and building sectors are currently at the European Commission level.

Romania and Poland to start closing coal units from 2030

A leaked document from Brussels announced plans of Romania’s government to phase out coal till 2032.

Poland’s main utility, Belchatow, will start gradually closing lignite generation units at the largest emitting installation in the EU ETS from 2030, according to a draft plan published by the Lodz regional government Tuesday.

Germany targets EU aviation allocation in carbon price stance despite pandemic problems

Germany favours the rapid end to free EU carbon allowances for airlines, according to a leaked document, increasing the pressure on the sector as it slowly recovers from the pandemic.

Source: Carbon Pulse, London


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The CO2 Market – 12.05.2021

EUA price has reached a new record this week, exceeding the threshold of 50 €/tCO2. The daily upward trend of about 3-5% is due to a growing demand from investors as a result of positive market signals regarding the approval of European climate law and political statements of European leaders, which encourages the CO2 free market and rising prices. Today, the EUA certificate was traded between € 53.15 and € 54.70 / EUA.

The European Climate Law

The European Parliament approved on Monday, 10.05.2021  the European Climate Law proposed by the European Commission on 20th March 2020. As one of the key elements of the European Green Deal, the European Climate Law enshrines the EU’s commitment to reaching climate neutrality by 2050 and the intermediate target of reducing net greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels. This agreement on the European Climate Law is a key milestone for the  European Commission, delivering on one of the commitments announced in the President’s Political Guidelines in July 2019.

In addition to the 2050 climate neutrality target, the agreement strengthens the European framework for climate action by introducing the following elements:

  • an ambitious 2030 climate target of at least 55% reduction of net emissions as compared to 1990, with clarity on the contribution of emission reductions and removals;
  • recognition of the need to enhance the EU’s carbon sink through a more ambitious LULUCF regulation, for which the Commission will make proposals in June 2021;
  • a process for setting a 2040 climate target, taking into account an indicative greenhouse gas budget for 2030-2050 to be published by the Commission;
  • a commitment to negative emissions after 2050;
  • the establishment of European Scientific Advisory Board on Climate Change, that will provide independent scientific advice;
  • stronger provisions on adaptation to climate change;
  • strong coherence across Union policies with the climate neutrality objective;
  • a commitment to engage with sectors to prepare sector-specific roadmaps charting the path to climate neutrality in different areas of the economy.

Source: The European Commission, Brussels

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