Co2 market

2015 balance and 2016 prospects

Start of a single carbon market between the United States and China.

In 2015 the CO2 volumes exchanged at a global level went down by 19%, i.e. 6.2 billion tons less compared to 2014. On the other hand, the overall market value has grown by 9% due to the significant increase in the unit price of emission permits.

The drop in volumes is mainly to be attributed to the strong fall registered in Europe (equal to about 29%), which is due to the scarce volatility that kept speculators away from the ETS market.

In spite of the rapid growth of the North American market, the EU ETS remains the prevailing market making up for 80% of global volumes and 77% of the economic value of all international carbon markets in 2015.

In 2016 analysts foresee on the one hand a slight increase in volumes following the modest activity that is still going on on the large Chinese and South-Korean markets, and on the other hand a strong increase in the value of global markets, which according to forecasts is expected to register an increase of about one quarter of its current value.

Carbon Market Size: data on the volumes and values of the most important markets for the 2013-2015 period anad 2016 forecasts

2013 2014 2015 2016
Final figures Final figures Final figures Forecast
Mt € million Mt € million Mt € million Mt € million
Europe (EUAs, aviation EUAs)* 8 092 36 045 6 942 40 694 4 960 37 460 5 343 46 873
CERs* 727 316 185 110 100 80 90 102
ERUs 112 24 18 2 0 0 0 0
North America 389 2 100 472 3 320 1 042 10 633 1 216 13 047
South Korea (KAUs and offsets) 0 0 0 0 1.2 11 19 170
Chinese pilot schemes 3.8 26 24 123 65 165 70 145
Other markets** 16 82 1.3 0.8 2 4 3 6
Total 9 340 38 593 7 642 44 250 6 170 48 353 6 741 60 343

Data processed by: Thomson Reuters.

Europe: prices supported by market measures

In 2015, the European price of CO2 emission permits increased for the second year in a row, going from an annual average value of 6 E/t in 2014 to 7.7 E/t in 2015. The revenues from European auctions also registered a 50 % increase (from 3.2 billion Euros in 2014 to 4.9 billion Euros in 2015) following the increase in both prices and the volumes exchanged.

European Carbon Market

2014 2015 2016 (forecast) 2017 (forecast)
Mt € million Mt € million Mt € million Mt
EUAs Auction 528 3,173 636 4,910 760 6,696 941
EUAs exchange traded 5,720 34,380 3,907 30,161 4,133 37,193 4,421
EUAs OTC 450 2,702 284 2,191 287 2,586 260
EUAs options 234 385 129 168 158 354 172
Aviation EUAs 10 54 4 30 5 44 5
sCERs exchange traded 97 39 37 11 30 9 26
sCERs OTC traded 28 11 13 6 10 3 6
Total 7,067 40,744 5,010 37,477 5,383 46,885 5,831

Data processed by: Thomson Reuters

The increase in the price of CO2 is mainly to be attributed to the implementation of major reforms aimed at supporting the market. First backloading and later on the Market Stability Reserve (MSR) have made it possible to influence supply, thereby significantly contributing to the necessary reduction in the excessive number of emission permits available on the market.

The agreement reached contributes to a price increase to 7.5 E/t at the beginning of May. The strong instability generated by the Greek crisis has caused enthusiasm to gradually wear off. A new wave of flame came with the signature of a third rescue package in July, which led the EUA above 8.00 E/t in August. In the second quarter of 2015 the drop in energy markets’ prices exercised a strong pressure on the CO2 market, thereby limiting the positive effect brought about by the reforms implemented. The EUA price rose again in October, touching nearly 8.71 E/t, i.e. the highest peak reached in 2015. At the end of the year prices were again affected by the negative trend registered on energy markets. The Dec16 agreement, i.e. the new reference contract signed and valid from 15th December 2015, registered a final price for the end of the year of 8.29 E/t.

Central to the 2016 discussions is the structural reform of the market. On 15th July the Commission published a proposal for the modification of the 4th phase in 2021. Member States are currently discussing the issue. The first exchange of opinions between the Parliamentary Committee Itre and Envi, which was originally scheduled for the end of January, was postponed to 20th May, when a report is expected to be released, followed by the vote in December 2016.

North America: Ontario will open its market in 2017

North America has two cap-and-trade systems, the «Regional Greenhouse Gas Initiative» (RGGI) and the «Western Climate Initiative» (WCI). The first system covers emissions coming from the electric energy production of nine North-Eastern States, the second includes California and Quebec and covers a wide range of industrial sectors making up for 80% of overall emissions.

The total volume exchanged in 2015 was 1,042 million tons, i.e. more than double of the quantities traded in 2014. The 2015 average value is expected to be 10.6 billion Euros, with a 220% increase compared to the 3.3 billion Euros registered in 2014. Such a significant growth is to be attributed to the fact that the WCI value included emissions coming from the retail sale of fuels, whereby this led to an increase of the volumes auctioned and traded on the secondary market.

The WCI market went from a coverage of about 165 Mt in 2014 to 403 Mt in 2015, following the fact that sales also included the fuels sold to final users, whereby this contributed to an increase in auctioned volumes of 212% from 2014 to 2015, from 90 Mt to 252 Mt, worth 3.4 billion Euros ($ 3.7 billions) in 2015, compared to the 742 million Euros ($ 986,000,000) registered in 2014.

In the next few years a continued growth is expected both in traded volumes and in market value in both ETS American markets. Ontario will start its cap-and-trade programme in 2017. Analysts estimate that the volume traded on the North American market can reach 1,400 million tons in 2017.

North American Carbon Market

2014 2015 2016 (forecast) 2017 (forecast)
Mt € million Mt € million Mt € million Mt
WCI 294 2 641 770 8 957 914 10 826 1 158
RGGI 164 591 252 1 475 291 2 110 241
Offsets 14 88 19 201 10 111 13
Total 472 3.320 1.042 10.633 1.1216 13 047 1 412

Data processed by: Thomson Reuters

Chinese national ETS twice as much as the European ETS

2015 was a year of significant development for the implementation of offset projects on the Chinese carbon market, with over 340 projects registered and almost 900 currently being registered. From the legislative viewpoint, the most significant event of the year was the joint declaration between the United States and China on climate change, which paves the way for the start of a single carbon market at a national level. The President of the People’s Republic of China stated his intention to start a single Chinese market during 2017. The same intention was affirmed by Chinese officials on the occasion of the Paris summit. According to analysts’ estimates, the national market will include the 7 existing pilot markets for a total of 4 Gt annual emissions, as against the yearly 1.8 Gt covered by the European ETS. This will make the ETS market larger at a world level in terms of reduction of emissions. The entire focus is now on national market preparations, data collection, and the drafting norms involving several central and local governments. Although currently available information is still scarce, some estimates can be done. First of all, the system is expected to cover all cities and provinces, without exception, to avoid expedients on the part of the industries subject to the ETS market. Secondly, it is desirable for the carbon market to significantly contribute to an improvement of the Chinese economy in terms of environmental performance and the transfer of technical and financial know-how towards an economy where carbon will pay an increasingly important role.

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