Carbon Market – 09.07.2024

European carbon prices traded in an almost-identical range last week at around 70€ as the summer holiday season swung into its peak period, with technical support and resistance levels compressing slightly as the market’s volatility has calmed, while UK Allowances fell away at around £44.50 after a landslide election result ushered in a centre-left government that is expected to speed up action on climate issues.

Live Carbon Prices

Guide for the Optimal Operation of the Voluntary Carbon Market

The Voluntary Carbon Market (VCM) allows companies, organizations, governments, and individuals to buy and sell carbon offset credits voluntarily. A carbon offset represents the reduction of one ton of carbon dioxide or other greenhouse gases achieved through an environmental improvement project, for which it must be demonstrated that emission reductions have been achieved. Emissions are turned into credits that companies can purchase. The projects are varied but mainly involve small community-based activities in developing countries. Reforestation projects, for example, have a strong beneficial socio-economic impact.

The voluntary carbon market aims to provide a mechanism for reducing emissions, channel funding, especially to low- and middle-income countries, and finally, pave the way for the creation of emission trading markets where they do not yet exist. Each project must meet the additionality criterion, meaning the removal or reduction of carbon or greenhouse gas emissions would not have occurred without the offset project.

IETA Guidelines and Challenges of the Voluntary Carbon Market

The International Emission Trading Association (IETA) has recently released new guidelines that analyze the use of carbon credits by industries in the voluntary carbon market and incorporate them into their emission reduction strategies. According to the document, there is a considerable possibility that firms will not meet their short-term environmental targets, risking deviation from the Paris Agreement goals of net zero emissions by 2050. IETA states that the role of the voluntary market is vital in the fight against climate change. It should provide “an efficient mechanism for companies to reduce or eliminate emissions in support of global decarbonization” to channel funding where it is needed, especially in poorer countries.

IETA’s guidelines for using carbon credits can be divided into six categories:

  • Companies must ensure, through their decarbonization policies, that they meet the Paris Treaty targets, both in outlines and interim targets.

  • Companies must quantify emissions according to an internationally recognized standard and publicly report them to access the carbon credit market.

  • Companies must establish and ensure a decarbonization pathway leading to the long-term goal of zero emissions, intermediate targets, and investments in environmental protection and economic growth.

  • Companies must use carbon credits by following a series of steps. They must first start with emission avoidance strategies, that is, implementing technological advancements in production processes. Then, they must move on to the actual reduction of emissions and, finally, the use of carbon markets.

  • Companies must use only officially guaranteed carbon credits issued by a reputable carbon credit program that has received an independent, third-party quality label (such as ICVCM, CORSIA, or ICROA).

We also have such a project in Romania, which receives carbon credits annually from the Swiss organization, Gold Standard, for the emission reductions achieved, approved at the same time by CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation). It is about the PET bottle recycling project in Buzau, developed by the company Greentech S.A., part of the Green Group. For more details about the project and how you can buy Greentech project credits, please contact us or click here.

  • And finally, companies must make the use of carbon credits transparent.

The IETA document states that “the voluntary carbon credit market is at a crucial moment.” It must adapt and evolve at a faster pace to maintain investor confidence and contribute significantly to the global goal of zero emissions by 2050. Carbon credit markets are hampered by the lack of a single system of standards and definitions, which now act to increase business confidence in these markets. The IETA document also emphasizes the growing role of removal credits, which are net reductions of CO2 directly from the atmosphere. These credits could also be a valuable mechanism if companies do not meet their interim targets in the transition to net zero.

The IETA guidelines are in line also with the European Green Claims Directive, which has been proposed by the European Commission and currently under discussion at the European Parliament.

Source: IETA, European Comission, Aither Group, Carbon Credits

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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.

Screenshot 2024-06-30 at 16-55-37 Live Carbon Prices Today Carbon Price Charts • Carbon Credits

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

 

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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

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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!

 

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The European Carbon Market – EU ETS II 07.11.2023

At the beginning of this week, the price of the EUA certificate reached the lowest level in the last five months, closing the ICE ECX futures market in London at 75.66 euros/tCO2 (06.11.2023). In October, prices were 3.2% lower than in September. A similar downward trend can be observed on the European energy market, as a result of forecasts regarding a mild winter, as well as the decrease in gas demand from the North Sea and a decrease in nuclear energy production in France.

The European Social Fund and the EU ETS II

As part of the revision of the EU ETS ‘’Fit for 55’’ package, the European Commission has proposed to extend the emission reduction obligation to buildings and road transport sectors as well, creating a true parallel ETS, in fact called EU ETS II, which will operate by auctioning allowances only. To address the social impact arising from this new system, the Commission has proposed to introduce the Social Climate Fund, an economic fund to address challenges of the energy transition and achieving emissions neutrality by 2050 based on the data collected from a 2021 European Commission study in which 34 million people in Europe, nearly 9% of the population, said they lacked the financial support needed for sufficient heating in their homes.

Regulation 2023/955 is the legal basis establishing EU ETS II and the Fund and entered into force on June 5, 2023.

The main purpose of the Climate Social Fund is to provide temporary direct income support to the most vulnerable citizens and micro-enterprises affected by rising energy costs, particularly for heating and transportation due to the increased environmental obligations resulting from the introduction of ETS II. The fund, however, also aims to incentivize investments in member states that reduce emissions in the road transport and building sectors to improve the efficiency of both sectors and reduce environmental impact and social pressure together.

In this regard, the European Commission introduced two new contents during discussions on the Fit for 55 Package:

  • “Energy Poverty” which shows households to lack sufficient economic resources to access essential energy services, such as heating, cooling, lighting, and energy to power appliances, and thus does not allow for the right to health and a decent standard of living;
  • “Mobility Poverty”  – the Commission refers to the condition in which households face substantial costs to get around, having limited access to affordable means of transportation, with a specific focus on critical locations such as islands, mountainous regions, and less developed remote areas. These two concepts have been the basis for all discussions of the Social Climate Fund.

Part of the Fund will be financed by the earnings from the auctioning of ETS II emission allowances (up to 65 billion euros), with an additional 25 percent coming from resources made available nationally by member states, for a total of about 86.7 billion euros. Projects targeted for investments will have to meet the principle of “no significant harm” and will have to demonstrate actual emission reductions.

The existing Innovation Fund, which is under the ETS, will also receive significant support, with an increase in dedicated resources, again from the auctioning of allowances, from 450 million to 575 million allowances until 2030.

The Social Climate Fund will be operational from 2026, while the new ETS II for buildings and transport, will come into effect the following year, in 2027, or 2028, if energy prices continue to be too high.

The European Commission also included a requirement for governments to submit a “Social Climate Plan” by June 30, 2025, with the goal of stating which projects they want to target the Fund’s investments on, feasibility studies, long-term environmental goals, and state-specific needs to address and mitigate negative revenue impacts in the short-term. The Commission also urged states to consult with local governments and civil society organizations during the development of their Social Climate Plans to make sure that demands of those to whom the Fund’s aid is directed can truly be heard. Without a doubt, the adoption of the Social Climate Fund represents an important social justice milestone on the long road to energy transition and a clean, low-carbon economy.

Source: The European Commission, Brussels & Aither Group, Switzerland

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The European Carbon Market: Maritime Transport – 28/08/2023

The EUA continued to increase last week towards the level of 85 euros/tCO2. If it exceeds the resistance line of 91 euros/tCO2, it is estimated that it can exceed the highest levels reached insofar.

Screenshot 2023-08-25 at 18.52.26

 The maritime sector and the EU ETS

Maritime transport emissions account for about 3 percent of global emissions. There was a long negotiation on maritime transport and the Fit for 55 Package operation among European organizations, and an agreement was reached after intensive lobbying. On April 18, the European Council approved the final text for including maritime transport in the ETS from January 2024. The final legislative text was published in the European Official Journal in May and entered into force within 20 days of publication. Directive 2003/87/EC of the European Parliament and the Council establishing the ETS was therefore amended by Regulation 2023/957 to include maritime transport activities in the ETS. This ensures that these activities contribute to the emission reductions set by Regulation 2021/119, which establishes the European Green Deal and the Union’s binding climate neutrality target by 2050.

Regulation 2023/957 establishes rules for monitoring, reporting, and verification of CO2 emissions with respect to ships arriving at, sailing in, or departing from ports under the jurisdiction of a member state. From 2024 all ships traveling to and from European ports, of all flags, regardless of their port of origin, will be subject to ETS obligations, while for non-European voyages only 50 percent of emissions will be covered by the scheme. Maritime operators must compulsorily open an account in the Union ETS Registry to trade EUAs, submitting the necessary documentation to the operator’s home national administration, which will collect and verify the information. Importantly, from 2024 all ships entered into the system will not receive free allocation of allowances, and thus permission to pollute will have to be purchased through the auction mechanism or authorized financial intermediaries.
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Monitoring, reporting, and verification of CO2 emissions

The Regulation also mentions the MRV system. Ships within and above 5,000 Gigatonnes (GT), transiting the European maritime space and within EU ports, must monitor and report their fuel consumption and emissions, information that an EU-accredited body must then verify. This process is formally defined by EU Regulation 2015/757. The phase-in period is gradual: cargo and passenger ships within and above 5,000 G.T. to 40 percent of ETS obligations in 2024, 70 percent in 2025, and 100 percent in 2026. Offshore vessels over 5000 GT will have a 100% obligation directly from 2027. Ships of less than 5000 GT will not be included from 2024, because the EU wanted to avoid assuming an unnecessary regulatory burden for ships that consume only a small amount.

The Regulation also includes a section on the administrative authority of shipping companies. For shipping companies registered outside the Union, the administrative authority is the member state where the fleet has transited most in the last two years. For fleets that are still registered in a non-EU country but have yet to make any voyages to or from Europe in the past two years, the administrative authority becomes the Member State from which the fleet finished its first voyage since the ETS came into force.

In conclusion, from January 1, 2024, shipping companies must start monitoring their emissions until December 31, 2024. Verification of emissions by certifying bodies has a deadline of March 31, 2025, and the surrender of allowances must take place by September 30, 2025.

The Regulation under analysis also mentions the failure to surrender allowances, which will result in a penalty of 100 euros per ton, which is the standard penalty for ETS operators in the case of violation. Failure to surrender allowances for two or more consecutive periods will result in the expulsion of the shipping company from the ETS.

Source: European Commission, Aither Group AG.

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The Carbon Market – 20.03.2023

The new carbon border adjustment mechanism (CBAM)

Initially, CBAM will cover the most emission-intensive sectors: iron and steel, cement, fertilisers, aluminium, electricity. The new agreements from 13th of December 2022, however, also feature hydrogen, certain precursors and other downstream products such as screws and bolts as imports under CBAM. In addition, the EU Commission will assess the inclusion of other products that might be at risk of carbon leakages such as organic chemicals and polymers into CBAM from 2030 onwards. Indirect emissions at the production facility might also have to be part of the emissions to be reported and consequently paid for by importing companies.

Timeframe for implementation

From October 2023 importers in the sectors covered by CBAM must be ready for their monitoring, reporting and verification obligations (MRV).

The pricing mechanism shall be launched in 2026.

At the same time and rate as European industries will not receive free allocations of EUA anymore, importers of certain goods into the EU will have to pay for the emissions of their products. This carbon border adjustment mechanism (CBAM) should on the one hand create a level-playing field between EU and non-EU industries for products in the EU (both paying a similar carbon price) and increase climate ambition in non-EU states (climate instruments and carbon pricing abroad can reduce necessary payments for importers).

Two main contentious issues remain for CBAM

  • How will reporting and verification methods and schemes really look like and work for imported goods? October is almost near and the MRV rules have not been yet set up.
  • How to compensate or support companies that produce in the EU and must purchase EUAs but export to non-EU countries where no or less ambitious carbon pricing rules exist? Although signatories of the Climate Change Paris Agreement, regional, national or subnational mechanisms have different rules. Some 47 countries and 36 cities, states and provinces already use carbon pricing mechanisms, with more planning to implement them in the future.  Together the carbon pricing schemes now in place cover about half their emissions, which translates to about 23 percent of annual global greenhouse gas emissions.

Screenshot 2023-03-18 at 20.59.30

Source: World Bank, Carbon Pricing Dashboard

EnergyPost.eu

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The European Carbon Market – 30.01.2023

The New EU ETS Reform

Right now, the existing EU ETS covers around 40% of the EU’s emissions (energy sector, industrial installations and aviation).

Its scope is being extended to include maritime transport. Maritime transport will be the newcomer and large vessels of 5,000 gross tonnage and above must gradually surrender emission allowances (EUA) for an increasing share of their emissions: 40% in 2024, 70% in 2025 and 100% in 2026. The inclusion of smaller vessels and non-CO2-emissions such as methane and N2O will likely start from 2026 onwards.

On top of that, the overall ambition of EU ETS emission reductions until 2030 compared to 2005 is increased from initial proposed 55% to 62%.

The agreement in the EU Parliament was reached on 18th of December 2022 and it would lead to about 23 million tons less CO2-emissions compared to the EU Commission’s proposal from 2021 and is much more aggressive than the minus 43% that has been the previous reduction target.

To achieve this stronger reduction of 62%, the legislators agreed on a rebasing of emissions:

·      90 million EUA are taken out of the market in 2024 with another 27 million EUA following in 2026;

·      The entire European mission cap will be reduced by 4.3% annually from 2024 to 2027;

·      From 2028 onwards this linear reduction factor (LRF) will rise to 4.4%.

·      The market stability reserve (MSR) will continue to take out 24% of surplus EUAs.

All these reductions will lead to significantly tighter supply of EUAs, drive prices in the next years and shall incentivise more decarbonisation especially in industrial sectors. This brings us to the changes for the industrial sector.

Fundamental change is also coming to the industrial sector, in particular the phase-out of free allocations of EUAs. From 2026 onwards, the number of free allowances handed over to industries will be reduced gradually until 2034 when industries have to procure all of their needed allowances through the auctioning mechanism or on the market.

Next to those sectors that are already under the EU ETS, a lot of emissions from other activities in the EU are not part of an emission pricing scheme. After much uncertainty about its prospects, it is now clear: a new or second emission trading system (EU ETS II) will be implemented as well for buildings and the transport sector, starting from 2025.

Source: EnergyPost.eu

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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

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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

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