The EU Finance for Climate Change 21.01.2020

Brussels proposes ‘just transition’ fund in €1 trillion green investment plan

The European Commission on Tuesday unveiled a €1 trillion investment plan to help meet the EU’s climate goals, seeking to divert 10% of the funds towards a “just transition” mechanism for fossil fuel-dominant regions, and potentially channelling aid to ETS installations. This measure could be among the first ones to help achieving the neutrality goal proposed before COP in December as the „European Green Deal”.

Key outcomes agreed at the UN climate talks in Madrid in December 2019

  1. Matters including Article 6, reporting requirements for transparency and “common timeframes” for climate pledges were all punted into 2020, when countries are also due to raise the ambition of their efforts.
  2. On 12-13 December, EU heads of state met in Brussels and agreed to make the bloc “climate neutral” by 2050. Despite resistance from Poland, which has until next summer to come onboard, the European Commission revealed a “European Green Deal”, which, if it becomes law, will commit at least 25% of the EU’s long-term budget to climate action.
  3. The conversation around Article 6 is technical and full of jargon, yet the way the rules are designed could “make or break” the entire Paris Agreement. This high-stakes situation was a key reason for failure in Madrid.

EUA Price increased

The carbon price opened, today, at €25,17/tCO2 at the ICE ECX exchange in London. EUA Dec-20 increased by €1.23 last week and closed at €25.44 (+5.08%). Traded volumes increased compared to the previous week with 120.9Mt versus 96Mt exchanging hands on ICE across contracts. The total Open Interest decreased by 6.3Mt for a total of 808.5Mt.

Screenshot 2020-01-20 at 17.43.46

Source: Point Carbon, Clear Blue Markets, London & CPLC, Washington

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The European Carbon Market

The European Commission unveiled its wide-ranging ‘European Green Deal’ on Wednesday, 11.12.2019 which aims to combat the effects of climate change, reduce the decline of the biodiversity, reduce pollution, and shift to a clean circular European economy.

This includes a legislative proposal to enshrine a 2050 net zero emissions target into law by March 2020. Snubbing lawmakers call to immediately propose a deeper 2030 goal.

The plan foresees additional annual investments of € 260 billion in the first decade alone, equivalent to 1.5% of the EU’s gross domestic product in 2018.

In the long term, the Commission estimates that at least 25% of GDP will have to be allocated to actions to combat change and promote the transition to a “green” economy.

The announcement has been made with the occasion of COP25, which has been going on in Madrid these days and has generated a price increase around the value of 25 Eur/tCO2. At the current time, the EUA is traded at 24.63 Eur at the ICE ECX exchange from London.

Source: The European Commission, Brussels and ICE ECX, London

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Regional and International Negotiations on Climate Change

An EU Commission document recently leaked by Greenpeace outlines a European Green Deal currently being drafted and 24.50 planned to be published on December 11t with the occation of the UN COP25 Summit on climate change held in Madrid these days (2-13 December 2019.

The document states that the Commission will propose the first ever European climate law that enshrines the 2050 climate neturality target and 24.00 will be enforced by March 2020. By October 2020, the

The Commission will also be releasing a comprehensive plan on how to increase the EU’s GHG emission reduction target for 2030 23.50 from 40% to at least 50% and towards 55%.

The increased 2030 target from 40% to 50-55% likely means fewer EUAs will be supplied over the next decade which would be very bullish for the EU ETS market which is already expected to witness significant shortages based on our analysis. The Netherlands has already announced that it supports this plan and will introduce sharper measures at national level.

The market has already reacted to this document news and the price decreased 3% in the last two days; current futures price on the ICE is 24.40 Eur/EUA.

November EUA Price

Screenshot 2019-12-03 at 11.42.14

Source: ClearBlueMarkets, London

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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

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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.

Screenshot 2019-11-05 at 16.08.29
Source: ClearBlueMarkets
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The CO2 Market 23.10.2019

CO2 prices rise for second consecutive week stopped today its uptrend course

Developments surrounding the UK’s exit from the EU set the direction of travel for EU carbon prices these two weeks, as prices climbed ahead of a vote in UK parliament that had been expected to confirm the country’s future involvement in the carbon market.

Carbon prices lost value in three of the five trading sessions last week, but still posted a weekly increase thanks to strong gains on 15 and 16 October, when prices rallied on expectations that the UK and EU would agree a Brexit deal ahead of an EU summit on 17-18 October. Yet, the British MPs later effectively voted for an extension of the Oct. 31 EU exit date, and prices began to drop, being at present time 25,20 Eur/tCO2.

The fate of the Brexit deal continues to impact the EU emission market

The fate of the Brexit deal has considerable implications for the EU ETS. If parliament approves the deal, the UK would remain in the carbon market until the end of 2020. This would also confirm that UK emitters must buy allowances to cover their emissions for 2019 and could create a surge of demand. This outcome would see the return of UK auctions and free allocation, which have been suspended throughout 2019.

Under a no-deal Brexit, the UK would exit the carbon market with immediate effect. UK emitters would not face ETS obligations for the 2019 calendar year.

 

EU carbon a “tricky” trade for now, but headed to €100 in two years, investor said to Carbon Pulse on 18.10.

Trading in EU carbon has become “very tricky” this year compared to last due to Brexit and a reversal in short-term fundamentals, according to one of the market’s most prominent long-term bulls, who predicts prices will top €100 early next decade.

Source: Carbon Pulse & AitherCO2

 

 

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The International CO2 Market

IEA-IETA-EPRI Conference on Greenhouse Gas Emission Trade

Casiana Fometescu, international CO2 consultant attended on behalf of ALLCOT Group the IEA-IETA-EPRI annual workshop on Greenhouse Gas Emission Trade, which was held at the International Energy Agency (IEA) premises in Paris, from 3-4 October 2019.

“This year, I could definitely see that the importance of the CO2 market worldwide has been tremendously grown. The number of the people at the conference doubled then last year, especially from governments representatives (Great Britain, Switzerland, European Commission, China, New Zealand, Canada etc.)”, mentioned Casiana Fometescu, Carbon Expert. Mark Lewis from BNP also said that he feels “like in the glory days of the carbon”, looking to the great audience and the topics discussed.

The international carbon market has become such an extended topic since federal policies, regions, states and companies have developed policies to reduce emissions, and each of them  have different technical details  in implementation. The presentations held explained many sub-national trading schemes or carbon initiatives (Ontario, Quebec, California), national (New Zealand, China, Taiwan, Korea, Japan, Costa Rica, Columbia), and supra-national carbon markets (EU ETS).

Few Take Aways

1. The representative of the World Bank, Celine Ramstein, recognised the importance of putting a price on carbon and mentioned that there are 46 national and 30 subnational jurisdiction with either carbon trading schemes or carbon taxes implemented. Yet, all the emissions trading schemes (ETS) in the world (including China) comprise just 20% from the worldwide greenhouse gas (GHG).
2. According to the last World Bank  (WB) report on the state of the carbon market, there is a diversity of carbon prices in different countries, ranging from 127 Euro/tCO2 in Sweden to 96 Euro/tCO2 in Switzerland, 25 Euro/tCO2 in the EU ETS to less then 10 Euro/tCO2 in the most countries covered by carbon prices. Just 5% of the global GHG have carbon prices between 40-80 Euro/tCO2.
3. The worldwide carbon revenues by governments are also on rise from 22 billion USD in 2016 to 33 billion USD in 2017, and 45 billion USD in 2018, according to the WB.
4. The voluntary market trading volumes has been rising in the recent years and companies are increasingly looking to set CO2 targets in line with the Paris Agreements, UN Millennium Goals, and EU targets for 2030 and 2050.
5. The EU target of carbon neutrality in 2050 can be achieved only if governments reinforce their National Determined Contributions (NDCs), and put higher targets to achieve through carbon offsetting and implementation of green technology, renewable energy and carbon storage measures.

6. Germany would like to introduce a national sectorial trading scheme in addition to the mandatory EU ETS, which will comprise more activity sectors compared to the EU ETS.
7. China has been moving forward on the implementation of the national ETS finalising Phase I with the plan to realise Phase 2 “simulation exercises” before the end of this year.
8. Article 6 UN negotiations of the Paris Agreement can represent an opportunity for private entities to contribute to global mitigation efforts through their participation in international market mechanisms through voluntary cooperation in the implementation of the UN countries NDCs. Yet, all pilot initiatives under the Article 6 are government initiatives and not private ones.
9. IETA’s 2019 GHG Market Sentiment Survey shows that 85% of respondents expect corporate voluntary action to increase over the next 5-10 years with businesses much more involved in reducing GHGs emissions and achieving their voluntary targets.

For more information, please contact us.

Source: IEA-IETA-EPRI Conference, Paris, 3-4 October

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The EU ETS Market

EU ETS buyers motivated to buy due to attractive prices

On 1st October 2019 the EUA was testing the very important rising trend line, which will also determine developments in the near future. The low to prices trading around 24,50 eur/t yesterday, 2nd October are also the 38,2% retracement of 2018 low to 7/2019 high. Although conditions call for a lower valuation (€22), as AitherCO2 have been analyzing a lot lately, prices are 22% lower from the high, on significant support and seem attractive. Market operators usually start purchasing allowances in advance when there is a collapse in the prices, as the exchange is very volatile and we could see quotations rising again, depending on Brexit’s outcome and other external factors.

The EU plans EU ETS changes

Further reforms to the EU emissions trading system (ETS) directive are likely during the 2020s, including a reduction in the free allowances given to airlines.

We will provide more about this information next week together with the conclusions of the IETA – EPRI – IEA Annual Workshop on Greenhouse Emissions Gases Trading, which takes place these days, from 3-4 October 2019 in Paris, where our International CO2 Consultant, Casiana Fometescu, has been invited to participate.

Source: AitherCO2, London and IETA, Paris

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The EU ETS Market 11.09.2019

The CO2 Price

The carbon price experienced a large oscillation this week, falling on Monday, 09.09.2019, below 25 euro/EUA on the ICE ECX exchange in London and returning today, Wednesday, 11.09.2019 til 27.25 euro/EUA.

The causes of price fluctuation are multiple:

  • a weaker energy complex;
  • resuming normal auction volumes after reducing the volume by 50% in August;
  • the first European Parliament sessions after the holiday;
  • the uncertainty of Brexit.

Brexit and its effects

On Tuesday and Wednesday, last week, the British House of Commons passed a law that will force the PM Boris Johnson to ask the EU for a third Brexit delay until 31 January. The increased likelihood for the UK to reach a divorce deal lifted carbon.

The Brexit issue drags on and has not gotten closer to any conclusion. On 28 August, UK Prime Minister Boris Johnson announced that the British parliament will be suspended from 12 September to 14 October, as opposed to the planned closure from mid-September to 7 October due to Labour and Tory party conferences. Therefore, the carbon price is expected to respond stronger in September when the market gets a clearer view of the Brexit outcome.

There was also some speculation over whether the UK would be granted with another extension to the Brexit deadline to 31 January 2020. Numerous sources pointed out an extension into next year would very likely require the UK to carry out compliance for 2019.

Source: ICE ECX and AitherCO2

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The EU ETS market

Here are the most relevant news items in the carbon world to help you make informed decisions as you build your emissions allowances strategy.

EUAs cuts around 37% in the final four months of 2019

EU allowance auction volumes will be cut around 37% in the final for months of this year, sales host announced on 11th July, as the MSR removes a further 117,6 million EUAs from the market this year. This is  the main fundamental for continuing the increase trend of the EUA price. For the first time in 11 years, the price was more than 28 Eur, ending at 28,47 Eur/EUA on 16.07.2019, determined especially by the German government announcement that it would be willing to cancel free permits as part of its plans to phase out coal-fired power plants. Support levels can be seen at 28-28.50 Eur/ton.

EU ETS emissions fell 3.9% in 2018

The EU Commission data shows that EU ETS emissions fell by 3.9% in 2018. Industrial installations and aircrafts emitted a total of 1.75 billion tonnes of CO2. This is a positive sign considering that emissions in 2017 were on the rise. The aviation sector’s output on the other hand is still escalating as ETS emissions rose by 3.9% for a fifth consecutive year. Industrial installations however registered positive gains as emissions fell by 4.1%.

WOW Air fined €30 Million for EU ETS non compliance

Iceland’s environmental protection agency has imposed a fine of €30 million on the bankrupt airline, Wow Air. This comes after the airline operator failed to pay for last year’s emission allowances upon the April 30 deadline. Wow Air is expected to pay €100 for each tonne of emissions in accordance with the statutory directives. This is the second time this year that huge penalties have been imposed as British Steel faced the same fate in May, paying out a record £120 million for non compliance.

Source: EC Commission, Brussels, ICE ECX & AitherCO2, London

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