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

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

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

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

The EU ETS and other carbon taxes

The London Stock Exchange, ICE ECX, ended the CO2 trading session yesterday, June 12, 2019, at 24.74 euros/EUA amid low energy prices and a lack of auctioning on the market.

However, the IETA report published last week about the expectations of EU ETS market participants in relation to carbon price over the next decade shows an increase in the carbon price to an average of 36 euros/EUA between 2021-2030.

In order to have an overview of the situation of CO2 markets in different regions, compared to the EU ETS market, the World Bank presents the figure below. You will notice that the current carbon price in the European Union is much lower than other carbon taxes imposed in jurisdictions, such as Switzerland or the Nordic countries.

Source: ICE ECX, London & The World Bank

The CO2 Market 15.05.2019

Carbon prices resumed the upward trend last Monday, 06.05.2019, after the previous week’s brief collapse soon after the compliance period ended. Trading activity started off to a good start selling at a €25.50 high for the day. Tuesday carbon gained 4.2% to reach €26.40 as strong buying at the auction drove up prices. The rally continued all through to Wednesday, testing the €27 barrier by rising 1.9% to €26.95.

The week’s rally did not last much and carbon slight lost value the next day to close down 1.6%. This did not stop it from breaking the barrier and trading well above €27 to a €27.20 high for the first time this month. Prices have been retracing since then, falling 3.3% on Friday, 10.05.2019

This week overall effect of the volatility has been to keep EUAs in a relatively well-defined channel between €24.50-27.50 since the middle of April. The recent sideways evolution of the market suggests traders are waiting for tomorrow’s TNAC announcement before initiating any longer-term positions.

Today’s EUA chart

Source: AitherCO2 and Carbon Reporter, London

The CO2 Market 16.04.2016

The CO2 Market 27.03.2019

EUAs continued Monday’s slow and steady rise, closing 2.9% higher at €21.55. Carbon kept pace with German power, while gas rose 1.4% and coal advanced 1%.

While prices have risen by more than 4% since Friday, there doesn’t seem to be much conviction to this move. Block trades continue to account for nearly half the total volume on ICE Futures (nearly 17 million EUAs yesterday), which suggests investors and utilities are managing their positions quite actively, but screen volume is trending lower since the start of the year as Brexit continues to weigh on the market.

Today, UK Parliament will hold a series of “indicative votes” on various alternatives to the existing agreement. These votes are not binding on the government, but will demonstrate what option Parliament may support. However, it’s not at all clear whether:

a) the government will adopt the favoured alternative and seek to re-open he withdrawal agreement, or

b) the European Union would be willing to re-open talks on the withdrawal agreement.

Our outlook for tomorrow is therefore neutral. It’s seems likely that the market will continue to grind higher in the absence of any change in fundamentals. However, it’s likely to be a quiet day as traders focus on events in Parliament.

We note that EUAs today rose from just above the 50% Fibonacci retracement to just below the 38.2% retracement of the February-March rally. So resistance at €21.58 will be tested very quickly, and a move above would then target the €21.80-21.85 band that has acted as a support area most recently.

EU ETS News

·      Linkage between Switzerland and EU ETS systems approved to be effective from the 1st January 2020

·      EU Parliament accepts proposal to increase emission reduction goal to 55% for 2030, boosting the current target by 15%

·      IETA (International Emissions Trading Association) will organize a meeting in Brussels on the EU ETS Strategy on the 2nd April 2019, and our CO2 international consultant, Casiana Fometescu, will be present at this event and will report you the upcoming news on the market.

Source: Carbon Reporter, London

The Carbon Market 19.03.2019

The pressure of weakening coal, gas and power prices finally told on carbon, and EUAs closed down yesterday, 18.03.2019, 3% at €21.80.

A large increase in open interest in EU emissions trading system (ETS) allowance call options has been observed in the last days and is likely to have been prompted by a vote in the UK Parliament this week to reject a “no-deal” Brexit. The options buying is likely to have been triggered by a UK parliamentary vote on 13 March, held in the evening after the market had closed, which resulted in members of Parliament (MPs) voting to rule out the UK exiting the EU without a deal.

The vote outcome appeared to reduce the risk that the UK will crash out of the carbon market on 29 March, which would be the default scenario under a no-deal Brexit. A no-deal scenario is widely considered to be bearish for EU ETS fundamentals, as UK emitters could sell 50mn-70mn allowances back to the market as they would no longer need these permits for compliance.

By removing the prospect of a no-deal Brexit — at least temporarily — the vote created more bullish sentiment among EU ETS market participants, and triggered the increase in open interest.

For Tuesday, 18.03, we are neutral to bearish: EUAs ended the day back within their key support area at €21.70-21.85 and this may offer some support early tomorrow when trading resumes.

Source: AitherCO2 and Carbon Reporter, London

The CO2 Market 11.03.2019

The EUA market traded last week within the range of 22.04-23.17 Euro/EUA.
The bullish sentiment that designed the market in the last few weeks is slowing down.

From the one hand, Brexit concerns are starting to enter into consideration in particular now that a no-deal Brexit is taking shape for the next future. In particular, the compliance deadline for UK operators has been anticipated to the end of this week, 15 of March 2019, and it is very likely that most of the operators have already purchased the units they needed for next Friday deadline.

In terms of bearish sentiment, we can also say that must-run capacity from gas-fired combined heat and power (CHP) and increasing coal-to-gas fuel switching has put German power sector gas burn on track to exceed coal-fired generation this week for the first time for any week, without at least one public holiday so far this decade. Moreover, with coal-fired generation likely to reach a decade low for a working week, there has been ample larger barge availability at Amsterdam-Rotterdam-Antwerp (ARA), even with Rhine levels rising and barge rates falling in recent days — suggesting coal-fired plant stocks are amply filled.

In this scenario, we do not expect a strong bullish market for next week, but a market range between 21.50 and 23 Euro/EUA.

At present time, the EUA is traded 22.37 Euro/EUA.

Source: AitherCO2, London