The International Carbon Market – 18.12.2022

Key Take-aways from COP27

The month of December was marked by the UNFCCC COP27 that took place in an international context  distinguished by serious geopolitical tensions, an energy crisis, unprecedented energy prices, inflation and slowing economies. A situation that forced states to rethink their strategies, both to respond to threats to energy security and at the same time to accelerate the shift in economic systems toward clean energy.

This meeting will be remembered as the one that achieved a historic result for climate justice and adaptation policies. In fact, the Loss and Damage Fund was created to support the most vulnerable countries affected by climate-related disasters-a mechanism that has always been at the heart of the claims of developing countries, which are demanding that industrialized states compensate for the effects of climate change, the damage of which they suffer the most even though they have not contributed to the causes. Yet, we remain skeptical if the pledged invoked by the developed countries will conduct to the real implementation and help of poor affected countries. Many details still remain to be worked out: the actual size of the fund, who will pay for these offsets, who will receive them, how impacts will be measured, which countries will be asked to contribute, which will benefit, and according to what criteria.

Positive notes include climate finance and especially market mechanisms. Indeed, discussions related to Article 6 of the Paris Treaty, the article that regulates the emissions market, appeared in all national pavilions at the COP, and this helped provide a significant amount of guidance that will help the operation of emissions markets. In the future, this may be the new model for COPs, with negotiators providing guidance on the implementation of Article 6 and Parties highlighting their progress in its use.

Yet, what is worrying is the lack of ambition on climate change mitigation. COP27 had started out with the goal of following up on the trust of last year’s COP26 in Glasgow, which aimed to make the 2020-2030 decade the transformative one for climate action, with the goal of keeping global warming within 1.5°C of pre-industrial levels, as envisioned by the Paris Treaty. However, there were no steps towards this, and the final text of the conference is effectively a repeat of the COP26 text on decarbonization, fossil fuel use, and emissions reductions. The 1.5°C. goal of halving greenhouse gas emissions by 2030 seems distant at the moment.

Interesting was India’s position at this COP. Last year in Glasgow, it had strongly opposed the call for abandoning coal as a source for producing energy, and this had resulted in the final document referring to mere “reduction” and not “elimination.” In Sharm El Sheikh, however, it was India that put forward the proposal to move away from fossil fuels, obviously supported by Europe and the United States, while now there were countries such as Saudi Arabia and Russia, which have oil production and trade as the basis of their economies, that prevented the final text from bringing advances. On the issue of moving away from fossil fuels, therefore, next year’s COP28 is eagerly awaited, in the knowledge of an already obvious underlying criticality: it will be hosted by the United Arab Emirates, a country holding some of the world’s largest oil reserves.

Source: UNFCCC and Aither Group

The European Carbon Market – 14.11.2022

We present you below the main EU carbon market policy and market news from the first week of November:

• After a lacklustre start to the week, EU Allowance prices continued to see daily price swings, trading over a €70.50 to €78 range last week;  and opening up today at €75.84/tCO2 at ICE ECX.
• Despite the European Parliament vote on RePowerEU being broadly in line with expectations, EUAs prices fell sharply on Thursday morning to a week low of €70.50 before recovering to close at just over €73 the same day.
• Dec-22 EUAs have rallied back today to over €76 at the time of writing, surprising given the analyst updates, but no doubt helped by reports of progress on the Fit for 55 reforms
• The European Parliament voted on 10th November on the RePowerEU package ahead of trialogue talks later this month – supporting the sale of €20b EUAs but only by “front-loading” 2027-2030 auction sales, NOT form the MSR or Innovation fund as preferred by the EU Council & Commission.
• In other policy news there appeared to be some agreement on a mechanism to manage price spikes (Article 29a) and the EU Parliament agreed to drop its proposal to restrict market access for non-compliance firms, instead pushing for increased market oversight by ESMA
• A survey of 12 analysts by Carbon Pulse showed a 15% drop in forecasts compared to previous expectations – average EUA prices were forecast to be €70.85 by end 2022 and €76.90 over 2023

Source: the European Parliament, Strasbourg, ICE ECX & CF Partners, London

The Carbon Market – 24.08.2022

We would like to announce the launch for public consultation of the RED Carbon Standard, which aims to be a robust and transparent code of rules and principles, so that as many green projects as possible from our country, but also from abroad, can be certified and obtain carbon certificates.

In this difficult period, in which the European legislation in the field of CO2 emissions does not provide for major changes in the sense that Brussels could promote a unitary legislation, which would offer the possibility for companies to obtain carbon credits for energy efficiency projects, renewable energy, forestry or those that invest in sustainable agriculture and because we don’t see this possibility in the coming years, we thought of being useful to local companies, more and more interested in implementing various projects that reduce carbon emissions.

This is how the Restart Energy Democracy Carbon Standard was born, which aims to certify green projects carried out by private companies, NGOs, local communities and give value to their sustainable work by issuing carbon certificates. Please access the weblink page of the public consultation and let us know your feedback: https://redplatform.com/en/red-carbon-standard-public-consultation-page/

Advantages of the RED Carbon Standard and Platform

The RED Carbon Standard and Platform are distinguished from other standards by a number of factors such as:

·       faster and cheaper process of certification

·       all processes are tested to offer an enhanced user experience;

·       everyone, individuals and companies, regardless of their country of origin can be rewarded with carbon credits for their green actions and projects;

·       franchises will guide users through the process if they need information at any time;

·       robust, transparent and safe Registry on blockchain

·       offering an easy-to-use platform, that can be accessed in the web version or by downloading the app on your smartphone;

·       blockchain is transparent, accessible and will hold information of all transactions public.

RED Carbon Standard aims to combine technological advancements with highly specialized expertise in order to give value to green projects on all aspects (carbon, social, community benefits, SDGs).

Projects Eligible for Certification

The Projects registered under the RED Carbon Standard shall meet the International Panel for Climate Change emission categories, as follows:

1.    Energy (renewables, energy efficiency etc.)

2.    Industrial Processes

3.    Other Product Use

4.    Agriculture

5.    Forestry and Other Land Use

6.    Waste

7.    Others

Project developers are encouraged to send their queries for certification with RED Carbon Standard to: info@carbonexpert.ro

The CO2 and Energy Market – 16.08.2022

EUAs posted a 4.8% weekly gain as prices climbed to another six-week high on Friday, 12.08.2022 and had a maximum of 90.71 euro/tCO2 at the end of trade day on ICE ECX on Monday, 15.08.2022 with traders suggesting the market is detached from fundamentals, while natural gas was weaker as countries continued to look for ways to trim demand for the fuel this winter.

European Energy and Gas Market

The European Commission, to protect itself against further supply cuts from Russia, announced on 20.07.2022 a plan to reduce gas demand and required member states to implement immediately, between August 2022 and March 2023, a voluntary 15% reduction in demand compared to the average of the last five years and to have storage facilities filled to at least 80% by November 1st. After a heated week-long discussion, member states agreed to the commitment, which will still entail major efforts.

The first immediate step to filling gas storage to the levels demanded by the Commission before winter is to reduce Europe’s current gas consumption. In part this is already happening because of skyrocketing gas prices, but much more is needed: according to the IEA, savings should be in the order of 12 billion cubic meters in the next three months. The IEA and the European Commission have been addressing the energy crisis since the early days of the invasion of Ukraine.

The International Energy Agency proposes measures for the EU Member States

The message is clear: with timely and sustained action, it is possible to reduce Europe’s dependence on Russian gas imports, and to do so in an orderly manner consistent with the Union’s climate ambitions. Against this backdrop, and following the Commission’s recent call to cut gas consumption and replenish storage, comes a new IEA plan with five concrete actions for European leaders to take immediately for a more coordinated approach to prepare for the coming winter.

• The first action involves introducing auction platforms to incentivize European industrial gas users to reduce demand. Industrial gas consumers can offer a portion of their supply for compensation, which can lead to greater efficiency and competitiveness. Similar auction models have been developed in Germany and proposed in the Netherlands.
•  Energy conservation is the second point. This involves minimizing the use of gas in the power sector, temporarily increasing coal- and oil-fired generation, and accelerating the deployment of low-carbon sources, including nuclear power, which by the way was officially included in the European Green Taxonomy, with the final vote in the European Parliament on July 6.
• The IEA is moving forward with the other three measures: improving coordination between gas and electricity operators in Europe, especially to manage storage; reducing household demand for electricity by setting standards; and finally, harmonizing national and European contingency plans for supply reduction measures and solidarity mechanisms.

National Measures accepted by the EU

In the end, it depends on the Member States if and how they will succeed in implementing these measures to reduce their dependence on gas imports from Russia. But if the IEA and the Commission think policies that suit everyone because this is their role, the powerful states in the EU, such as Germany and France, implement their own measures, such as the reactivation of coal mines or the increase of nuclear energy capacity.

Germany’s decision to delay the retirement of coal plants scheduled to close and re-activate reserve capacity could push EU power sector emissions 5% on 2023 and 2024 higher over the next two years, according to a modeled report from analysts as published by Carbon Pulse. And France has announced a “renaissance” for the French nuclear industry with a vast programme to build as many as 14 new reactors.

In this context, Romania should not only implement the central EU policies, but a redefinition of the national energy strategy, starting from the varied resources of our country (biomass, coal, waste, etc.), is desirable if pursues the good of the Romanians.

Source: The International Energy Agency, the European Commission, Aither Group, Carbon Pulse, ICE ECX.

The CO2 Market EU ETS – 21.04.2022

The ICE ECX market in London closed yesterday, April 20, 2022, the EUA futures contract at the price of 87.82 euro / tCO2, increasing by 9.5%, as a result of the approach of the compliance deadline from the end of this month.

Verified emissions under the EU ETS likely rose by a record 8.3% last year, according to a poll of analysts published by Carbon Pulse, with output rebounding from the pandemic-induced drop in 2020 as utilities burned more coal and the European economy recovered. The EUAs surrender deadline for EU ETS installations is 30th of April companies, and the European Commission will soon make available 2021 verified emissions data.

Carbon Border Adjustment Mechanism

The EU’s 27 economy ministers reached an agreement on 15th March to introduce a carbon levy on imports of highly-polluting goods like steel, cement and fertilisers, but kicked the can down the road on controversial aspects like the use of revenues coming from the scheme.

The carbon border adjustment mechanism (CBAM) was proposed by the European Commission last year as a way to protect EU industry from imports of products coming from countries where it is cheaper to pollute.

Making headway on the idea is a priority for France which currently holds the rotating presidency of the EU. The implementation of CBAM is the next step that we shall closely follow.

Source: Carbon Pulse & The European Council

The CO2 Market – 09.03.2022

We would like to write in the following lines some considerations on the carbon market, in these difficult moments we are going through.
With the start of the war in Ukraine, the price of carbon on the European market EU ETS fell by about 40%, from Thursday (24.02), to Monday  (07.03) from 94.97 euro/tCO2 euro to 57.93 euro/tCO2, prices traded on the stock exchange ICE ECX in London.

On the information channels of the foreign professional groups in which we participate, we were warned on Sunday evening (27.02) of the possibility of a market downturn, as a result of anticipating massive sales of certificates held by Russian oligarchs, fearing that their financial assets would be confiscated, as the physical ones were confiscated, and wanting to turn them into liquidity as soon as possible. The market started to decline quite slowly in the first days of March, but sustained. In other words, the news received was true, but no one could have predicted that the market would be so destabilized, no matter how big these assets were. We suspect that other investment funds also began to fear the market downturn and acted in the same direction of selling the certificates purchased in order to make a profit, even if less than they had estimated.

Suddenly, the European carbon market, which analysts say is directly proportional to the energy market, does not know how to explain the rising trend of prices (otherwise artificially inflated by the acquisition of EUA certificates made by the funds of investment and the rich people of this world), no longer had this trend, but behaved based on the rules of supply and demand and decreased dramatically, unlike the energy market, which grew during this period.

Romanian polluting companies breathed a sigh of relief that they can buy certificates at a slightly more reasonable price and started buying as soon as the price fell below 90 euros, in various volumes and according to their budget possibilities. Moreover, some of these companies, having a prudent management and knowing the intransigent EU policy regarding the acquisition of pollution quotas, have decided to buy for the compliance of the current year.

In Brussels, peace, panic … the reforms regarding the EU ETS market were postponed, put in second place and, rightly, the European decision makers had more serious problems to analyze and decide. From time to time, there was a statement (Friday, 04.03) from Frans Timmermans, head of the Green Deal, that the strategy of the European energy market must be rethought and we can resume coal-based activities in Europe, which made the price CO2 to decrease on Monday, 07.03, to the lowest level of 57.93 euro / tCO2. We note that this statement states that the “EU’s environmental objectives” should not be neglected, which was quite contradictory, but we are not surprised. Yesterday, 08.03, European Commissioner Ursula von der Leyer reaffirmed her confidence in the European environmental strategy and said: “We must become independent of Russian oil, coal and gas. … We need to act now to reduce the impact of rising energy prices, diversify gas supply sources for next winter and accelerate the transition to clean energy. ”
And the price of carbon, finally based on an optimistic statement, began to rise in a smooth manner, to 71.82 euros / EUA, at the time of writing this article (09.03, 15 o’clock), ie increased by 20 %, in one day. If you want to read the full statement of the European Commission yesterday, 08.03, please access here.

This is what the European carbon market looks like these days. It depends on the statements of political leaders, their decisions and actions, a geo-political conflict that can escalate at any time. No one can predict in what direction the price of the EUA certificate will go or if there will be another EU ETS market in a year or two. The European Union is not giving up on the climate targets set for 2030 (Fit for ’55), at least declaratively, because it would mean acknowledging that it has failed its own energy and climate strategy. He now claims that he is diversifying energy sources by importing hydrogen from renewable sources, neglecting his own resources, and that in a year’s time he will reduce his dependence on Russian gas by two-thirds. And we Romanians continue to be gullible, obedient and dependent on the decisions of the great international actors.

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.