The Carbon Market 20.11.2019

The EU Tightens EU ETS Free Allocation Rules

The European Commission adopted regulations that will allow it to amend the volume of EU emissions trading system (ETS) allowances that an installation receives for free, in response to changes in that installation’s activity. The rules will apply during the carbon market’s fourth trading phase, from 2021-30.

Under the revised EU ETS directive, the main piece of legislation covering the carbon market, the EU can adjust an installation’s free allocation when its operations decrease or increase by more than 15%. The new rules adopted allow for further adjustments to free allocation, after this initial change has taken place.

The aim is to make sure that industrial firms only receive the amount of free carbon credits they need to cover their actual emissions. In particular, it aims to avoid windfall profits, whereby firms receive more free allowances than they need and sell the spare permits to generate cash.

The EU may consider further changes to free allocation in the 2020s, if the bloc sets a more ambitious emissions reduction target for 2030 — an aim supported by the president-elect of the incoming commission. Ursula von der Leyen is also considering an EU-wide carbon border tax policy, a move that is likely to see industrial firms lose their free allocation in the carbon market.

The EUA Price

The ICE ECX exchange from London closed yesterday, 19.11.2019, at 23.44 Eur/EUA. The ccarbon price decreased with at least 1 Euro in the last week because of bearish reactions to a lack of firm EUA cancellation plans in Germany’s coal phaseout bill triggered selling.

Germany will next year begin the process of phasing out its hard coal-fired power plants, according to draft legislation, with a decision on cancelling a corresponding number of EUAs appearing to be postponed until at least 2022.

Source: AitherCO2 and Point Carbon, London

The CO2 Market 05.11.2019

US Policy undermines international treaties on climate change

The United States government began yesterday, 4th November 2019, its formal withdrawal from the Paris Agreement.

The US government announced that it had notified the UN of its intent to withdraw from the Paris Agreement. Under the terms of Article 28 of the agreement, yesterday was the earliest that such a notification could be issued and will take effect in one year. This follows US President Donald Trump’s statement in June 2017 that the country would withdraw from the deal as soon as practically possible.

Moreover, the US has major concerns about the EU’s and China’s approaches to the international aviation agreement on CO2, CORSIA, and we could have ahead a crunch deadline of this agreement too.

Last month, the Trump administration sued California state to shut down California’s emissions-trading market designed to limit air pollution, claiming it is unconstitutional because it is run in cooperation with the Canadian province of Quebec. The lawsuit contends that international pacts such as California’s cap-and-trade program can be agreed to only by the federal government, or with its blessing.

Source: IETA & Carbon Pulse

The EU ETS Market

The market has now been trading around the €25 area for the 3 past weeks and appears to be directionless. For this reason, we will stay neutral as we wait to see what the next price movement could be. The important resistance and support levels to watch are €24.30 and €26.30 as a break of one of those levels could see the volatility increase.