The CO2 Market 15.01.2019

Implications on MIFID II rules on the carbon market

Today, 14.01.2019, the CO2 certificate closed at the ICE ECX stock exchange in London at a price of 22.58 Euro / EUA. Participants on this exchange attributed a slight decrease of 0.7% compared to Friday, 11.01.2019, to low energy and gas prices. Tomorrow, a higher volatility is expected as a result of the political news, particularly the vote on the Brexit Agreement in the British Parliament.

Starting from 1st January 2019, all corporations that participate in financial transactions, including trading of emission allowances in the EU ETS, should be issued the Legal Entity Identifier (LEI).

The Legal Entity Identifier is a unique identification of legal entities participating in financial instruments. The Markets in Financial Instruments Regulation (“MIFIR”) came into force forming part of the wider legislative package introduced by the Markets in Financial Instruments Directive 2014/65/EU (“MiFID II”). Amongst other matters, it introduces requirements for entities participating in financial transactions to be identified through a Legal Entity Identifier (“LEI”) code.

The Local Operating Units (or LOUs) are issuing LEI numbers, and you have to apply there to get your LEI number: https://www.lei.direct/lei-services/your-lei-in-3-steps/

If you need advice in acquiring LEI, please get in contact with us. If you already acquire it, please send us for subsequent CO2 trades.

For information related to the set of documents requested before trading, we remain at your disposal.

Source: European Commission, Brussels and AitherCO2, London

The Carbon Market – 2018 Retrospective

UNFCC COP 24 concludes in Katowice

The UN Climate conference ended in December 2018, after two weeks of intense negotiations on ways to put the Paris agreement into practice. One of the major discussion points included how to account for and record green house gas emissions. Crucial issues such as what countries would do to limit temperature rise to below 1.5 degrees as was stated in the IPCC report were ignored. A decision on carbon markets was pushed to next year’s COP meeting as countries failed to reach an agreement. Climate experts have criticized the agreements drawn from the conference as being inadequate and not urgent enough to address the climate’s current challenges.

Countries pledge tougher CO2 cuts

A group of developing countries, the EU, and Canada have committed at COP24 to set tougher targets to cut greenhouse gases and raise their countries’ targets by 2020. They have resolved to put in extra measures to go beyond what had been agreed upon at the COP conference. Practical ideas on how this would be done was however not discussed and how they intend to achieve these goals is to be seen.

Market Stability Reserve comes into effect as of 1st January 2019

As of 1st January 2019, the Market Stability Reserve will officially begin working. The MSR was set up to eliminate the surplus of emission allowances that has been accumulating in the EU ETS since 2009. 265 million EUAs will be placed in the reserve between January and August of 2019. Volumes will be significantly reduced in comparison to the previous years and this is expected to hike carbon prices as a result.

Yesterday EUA closing price on ICE EXC exchange from London was 22,84 Euro.

UK auctions and free allocations suspended

The European Commission has announced the suspension of all EUA sales issued by the UK as of 1st January 2019 until a Brexit deal between the UK and the EU is settled upon. This means that the UK will not auction or allocate allowances. Allowances already in circulation will not however be affected. The UK will leave the EU ETS immediately if a Brexit deal is not agreed upon. The absence of UK auctions and the German auctions that are yet to be confirmed is expected to keep prices high as the new year begins with less supply.

Our attention looks to next Tuesday, 17.01.2019, when the UK Parliament will vote the withrawal agreeement from the EU.

Source: European Commission, Brussels and AitherCO2, London