The Carbon Market – 31.06.2024

We present you the price of carbon certificates on the mandatory market in different regions of the world  Friday, 28.06.2024, as well as compared to last year’s price.

European Commission Adopts New Measures for EU ETS

At the beginning of this month, the European Commission published a communication regarding the Total Number of Allowances in Circulation (TNAC) within the EU ETS under the “Fit for 55” legislative package and the REPowerEU Regulation of 2022. This indicator is essential for the functioning of the Market Stability Reserve (MSR) and determines the number of allowances withdrawn or issued from the reserve.

According to the 2015 MSR decision, 24% of allowances are allocated to the reserve if the number of allowances in circulation exceeds the threshold of 1.096 billion. This policy change directly leads to a decrease in the volume of allowances available for auction. The notification from June 1, 2024, stipulates that 266,816,768 allowances will be placed in the MSR for 12 months, from September 1, 2024, to August 31, 2025. Additionally, the Commission indicated that 381,744,844 allowances from the MSR are no longer valid as of January 1, 2024. The TNAC indicator will be published on June 1, 2025.

All these changes, resulting in fewer allowances on the market under conditions of constant or increased demand due to the inclusion of the maritime system in the EU ETS this year, will raise the price of allowances in the medium term.

Aviation

Reuters published the opinions of some leaders in the aviation industry this month, highlighting Europe’s need to invest more in synthetic aviation fuels if it wants to achieve climate neutrality by 2050.

Sustainable aviation fuel (SAF) could reduce aviation emissions by up to 80%. There is a shortage of raw materials to produce enough fuel from organic materials, so investment in more expensive synthetic fuels made from hydrogen or carbon capture, known as e-SAF, will be necessary. The problem with these fuels is their high cost, which means only a few companies can afford them. The use of SAFs could positively influence the efficiency of the EU ETS Scheme in the aviation sector, helping companies better meet the imposed emission limits. However, greater investment from the European Union and a more uniform regulatory framework are needed.

Maritime

The maritime sector has been included in the EU ETS since January 1, 2024, and will be fully introduced by 2026. The first compliance deadline is September 2025, with 40% of emissions produced and reported from January 1, 2024, to December 31, 2024. According to Regulation 2023/2849 (the MRV Regulation for the maritime sector), if shipping companies do not report emissions for the entire year in accordance with this regulation, management authorities are responsible for conservative estimates.

Source: European Commission, Aither Group, Carbon Credits

The European Carbon Market -16.06.2024

The EUA price closed on Friday, 14.06.2024, on the ICE ECX futures market in London at 68.628 euro/tCO2. The European carbon certificate price last week remained in the 68-70 euro/tCO2 range, despite a nearly 10% rise in natural gas over the period, breaking the long-standing correlation between the two markets.

A new climate target for 2040 in the European Union

At the beginning of this year 2024, the European Commission published a Communication entitled “Europe’s climate change target for 2040 and the pathway to climate neutrality by 2050”. Climate neutrality is at the heart of the European Green Deal and is in line with the EU’s commitments under the Paris Agreement. The target recommended by the EC in this proposal for 2040 is a 90% net reduction in greenhouse gas emissions compared to 1990 levels and is seen as a reasonable intermediate step between the 2030 target of at least a 55% reduction in net emissions compared to 1990 levels and achieving net zero emissions by 2050.

What is this target?

In order to reach the ambitious target of a 90% reduction in emissions by 2040, emissions would need to fall to at least 850 million tonnes of CO2, which means that at least 400 million tonnes of CO2 would need to be removed from the atmosphere through both afforestation and the use of innovative solutions such as carbon capture and storage technologies.

In its assessment, the Commission describes the favourable policy conditions needed to achieve the 2040 target. According to the Commission, the energy sector should move closer to full decarbonisation in the second half of the 2030s in order to achieve it by 2040. In addition, renewable energy is expected to generate more than 90% of Europe’s electricity by 2040. Once agreed, the 2040 target will form the basis of the National Determined Contribution (NDC), which contains the targets that each EU country commits to under the Paris Agreement. The European Union must present these NDCs by November 2025, before the UN COP30 Summit in Brazil.

How can it be achieved?

To be achievable, any ambitious target must also be realistic. Thus, to reach this target, an emission reduction target of at least 55% by 2030 in all EU countries will have to be met. In addition, all possible low emission energy solutions will have to be implemented: not only solar and wind energy, but also Carbon Capture and Storage solutions as well as nuclear energy. According to the Commission, the transport sector should also reduce its emissions through technological solutions and through the emissions trading scheme planned to be implemented from 2027 for this sector.

In the Commission’s assessment, the agricultural sector can also participate in the transition with the right policies and adequate support. It must ensure sufficient food production and fair incomes for producers and workers and together implement sustainable technologies and methodologies that do not degrade soils and preserve the capacity of forests to store carbon.

In the European Commission’s view, the key conditions for achieving the three targets for 2030, 2040 and 2050 will be to ensure the competitiveness and robustness of European industry, a fair transition that leaves no one behind, cooperation with international partners and increasing Europe’s resilience to crises by strengthening the condition of energy independence. In particular, the Commission argues that an open dialogue with all stakeholders, from the different European institutions to the industrial, energy, agricultural and civil society sectors, is a prerequisite for achieving the transition and developing the necessary conditions to attract investment.

In our view, the 2040 climate target will pave the way for intense political debate and will be one of the points to be addressed by the next Commission, which will take office after the recent European elections in June 2024 and could lead to the adoption of 2040 target by the end of 2025.

Source: The European Commission, Brussels & Carbon Pulse, London

The EU Carbon Market – 2023 Retrospective and Expectations in 2024

We have entered a new year and, above all, we wish you a good and peaceful 2024, with fewer challenges and more achievements in your professional and personal life!

The year 2023 was a tumultuous one both for the CO2 emissions market, but also economically and socially. We don’t think anyone can say they were bored this year, and 2024 is going to be just as intense, from our perspective.

We mention below some of the European directives in the field of carbon emissions, which were revised or taken shape in 2023, some of them continuing to be negotiated in 2024:

• The European Green Deal – legislative package proposing the reduction of CO2 emissions, at the European level, by 55% by 2030, compared to the level of 1990 and reaching NetZero by 2050;

• Revision of the Directive on the European Greenhouse Gas Emissions Trading Scheme (EU ETS 1) – the emission reduction target for the sectors included in the scheme (energy, metallurgy, cement, chemical sector, air transport) has been tightened by 62% to in 2030, compared to the 2005 level, and the scope has also been extended to maritime transport, starting in 2024;

• EU Regulation 956/2023 regarding the establishment of a carbon border adjustment mechanism (CBAM) through which importers of products from the targeted activity sectors (aluminum, iron steel, cement, fertilizers, hydrogen and electricity) will have up to in 2026 quarterly reporting obligations of CO2 emissions incorporated in imported products, and from 2026 they will have to buy CBAM certificates if these products will continue to be more polluting than domestic ones; the first reporting according to the CBAM Regulation must be done by 31.01.2024 for the products imported in the last quarter of 2023. Most likely, many importers do not know about this reporting yet and will face it as they have imports of such products in 2024;

• EU Directive 2022/2464 regarding corporate sustainability reporting (CSRD) – the new sustainability reporting rules will begin to apply gradually between 2024 and 2028, depending on the number of employees and the turniver of the company;

• Revision of Directive 2010/75/EU on industrial emissions, amended in July 2023 – poultry and pig farms are considered, according to this legislative text, industrial installations and must measure their CO2 emissions; they got rid of cow farms for the time being, taking into account social pressure from Holland and Belgium, but we believe that they will be proposed again for inclusion;

• The European emissions trading scheme – EU ETS 2, which will include the following sectors of activity: transport (road and rail), buildings, agriculture, waste and other industrial sectors that are not in the EU-ETS, expected to be applicable from 2027 – under negotiation;

• The EU Carbon Removal Framework” – it targets emissions from agriculture and the promotion of regenerative agriculture – under negotiation;

• Revision of the Directive of the European Parliament and of the Council on due diligence obligations in the field of corporate sustainability and amending Directive (EU) 2019/1937 (CSDDD) – under negotiation

• Count Emissions EU – the proposal of the European Commission regarding the establishment of calculation methodologies for transport emissions, according to ISO 14083:2023 – to be defined;

All these legislative proposals and changes have allowed us to adapt our services and to provide new services, such as assistance in reporting on the carbon mechanism at the border, in order to support Romanian companies in fulfilling their obligations, measurement of the carbon footprint of companies (Scop 1, 2 and 3), and assistance in setting up the strategy or CO2 emission reductions according to the Science based Target Initiative (SBTi).

We would also like to remind you that, at the global level, the UN Climate Change Summit – COP28, held in Dubai in December 2023, did not have the expected results. And if Europe continues with its NetZero policy, in a much too accelerated way and in all sectors of activity, the other big polluting states, such as Russia, China and India, continue to show a lack of ambition and climate urgency. They have not reviewed their voluntary commitments to reduce emissions under the Paris Agreement. In addition, a study published during the Summit showed that current UN countries’ commitments are not enough to close the gap between projected emissions and the level needed to keep global temperature rise below 1.5°C.

In May 2023, our expert, Casiana Fometescu, mentioned in a public conference that “we estimate that the European Union will modify the NetZero target, as it is predicted for the year 2050, to be achieved much earlier, in the year 2040”. However, we did not expect the EU proposal to happen so quickly. In October 2023, the Commissioner for Climate Action, Wopke Hoekstra, proposed a net emissions reduction target of 90% for the year 2040. The calendar of discussions at EU level regarding the establishment of new emission reduction targets, separated by activity sectors , for 2040, was published, and at the end of June it will be included in the EU Strategic Agenda for 2024-2029.

When you have such ambitious new targets, the legislative texts should also be modified so that these are achievable. We were wondering, therefore, which legislative texts will be revised again in 2024 and 2025, as a result of these future new objectives and when the European Commission, will realize the unfortunate consequences of such rapid legislative changes.

We did not intend with this newsletter to worry you, although maybe we did, but above all to make you aware that you must be one step ahead of “compliance”, so that it does not take you by surprise and prepare yourself, as the Romanian is a good householder and prepares ahead of time for the winter and storm.

What do you need to do to prepare? Regardless of the activity sector you are in, be it industrial, agricultural or services, you should measure the company’s emissions (in all 3 fields of application or scopes), compare yourself with a benchmark in your field of activity and make a strategy and concrete plans to reduce emissions, according to the new EU targets, i.e. the one foreseen by Net Zero until 2040. Otherwise, if you don’t fulfill the “plan”, you will be charged soon, and the taxes and CO2 certificates will be stinging.

We are with you on this journey and we want it to be easy for you!