Co2 Market

In Europe, discussions are continuing over phase 4 of the ETS

The agreement reached in Paris over the climate has been ratified by an adequate number of countries which represent a sufficient quota of global emissions. The threshold was reached on 5 October and the Agreement will come into force on 4 November.

On 6 October the delegates of the International Civil Aviation Organization (Icao) assembly decided to create an offsetting mechanism to compensate for the growth in emissions produced by the international aviation sector. A market which will be voluntary from 2021 and obligatory from 2027.

In Europe, legislators are working hard on the revision of the ETS directive and on the debate over the Commission’s proposal for a new shared effort aiming at reforming the system.

Carbon Price: prices of the last day of trading in May and monthly volumes, in brackets values for April.

Contract September closing price Volumes traded in September
EUA Dec-16 4,96 E/t (6,18) 319,6 Mt (197,6)
CER Dec-16 0,38/t (0,42) 0,8 Mt (0,8)

Average Fair price assessment for 2016-2020 EUAs. EUA Price Forecast 2016-2020: 7,1 E/t. (Source: Thomson Reuters Carbon Europe). Updated on 13 May 2016.

Europe

The persistent presence of an excess of emission quotas continued to weigh on the European carbon market during September. In the absence of valid support, the price fell below 4 E/t reaching the lowest values of the last three years. The market opened the month of September at 4.47 E/t and reached its minimum five days later. After nine days of falling prices, with fluctuations in the DEC16 contract of between 3.95 and 4.15 E/t, an upward movement began to emerge in the second half of the month and brought the EUA to recover by more than 60%. A key factor in attracting investors to the market was probably the recovery of the other energy commodities market, in particular power and oil.

On the regulatory front, during September, after the summer break, debates restarted within the Board work groups and in the corridors of Parliament over the reform for Phase 4 of the ETS. Both the parliamentary committees responsible, the Committee on Environment (Envi) and the one for Industry and Energy (Itre), have resumed their assessments on the modifications suggested by the MPs before the summer. The two parliamentary committees appear to agree on the need to intervene on the overall cap on emissions, reducing the linear factor, currently set at 2.2 per cent. However, the meeting on 29 September showed that the two groups are not in agreement over the fundamental questions such as the size of the reduction of the linear factor and the method to be taken to oppose the risk of carbon leakage. They will also vote on these topics in the next meetings. We shall have to wait, respectively, until 8 December for the ENVI vote and 13 December for that of the Itre Committee.

Fuel Prices

Contract Price Change
EUA Dec-16 Û 4.96/tonne (4.47) 11.0%
German power front year Û 28.88/MWh (26.10) 10.7%
Front month Brent crude oil $ 49.06/bbl (47.04) 4.3%
Summer-ahead NBP gas 38.74 pence/therm (36.90) 5.0%
Year ahead coal contract $ 62.49/tonne (58.05) 7.6%

Source: Reuters

North America

No green light yet for the cap-and-trade beyond 2020. Legislators in California have not managed to obtain, in September, the definitive OK for the WCI market post 2020. About 4.5 million tonnes have been traded on the platform. The ICE of the WCI market during September fell by 63% compared with August, probably attributable to the uncertainty of what will happen post 2020. The political uncertainty has not, however, negatively influenced the price of the V16 DEC 16 contract which kept an average value of 13.94 $/t, 0.11 $/t higher than the average August value.

On the other hand, 7.7 million tonnes have been traded on the RGGI market, 13% less compared with August. The average value of the quotas has remained more or less the same, at a level of 4.65 $/t.

During September, the California Air Resources Board (CARB) held a Board of Directors meeting to discuss the proposed changes for the cap-and-trade mechanism. Representatives from environmental associations harshly criticised the ETS system, citing an academic study which shows how cap-and-trade systems do not work in encouraging a reduction in emissions in economically vulnerable areas. Despite the opposition, the president of the CARB, Mary Nicols, continues to support cap-and-trade. She has also anticipated that the CARB will take into consideration changing to an allowance of quotas through auction, replacing the current system which sees auction and free allowance of emission permits to coexist.

China

They are waiting impatiently for details of the Chinese national ETS system, which is expected to start up in January 2017. Jiang Zhaoli, vice director of the Climate Department of the National Development and Reform Commission (NDRC), has confirmed that the market will cover eight sectors and 32 industrial sub-sectors, as has already been announced in an official communication last January. More sectors will be added later and the inclusion threshold, based on level of energy consumption, will be lowered further. Initially, only installations which exceed 10,000 tons of CO2 will be included in the market. From 2020 onwards, the threshold will reduce to 5,000 tonnes per year. From that point onwards, free allowances will be based on reference parameters rather than on historic levels of emissions.

Therefore, the number of companies subject to the Chinese national market will be destined to increase significantly after 2020.

The environmental law about to be published, with which the ETS market was launched, will not introduce a carbon tax, which may, instead, be implemented by a parallel legislative instrument.

The subject is currently in the initial study phase with various government agencies. Judging from Jiang’s statement, it appears likely that an emissions tax could be imposed from 2020 on most emitters outside the scope of application of the national ETS system.

Pilot Price Sept 30th End-month Price change (%) Sept allowances trade volume
Shenzhen 31,34 16% 75.747
Shanghai
Beijing 52,6 1% 2.321
Guangdong 10,31 -32% 1.228.178
Tianjin 15,05 2% 200
Hubei 16,69 8% 410.159
Chongqing 34,69 65% 449
Total 1.717.054

Source: Thomson Reuters

In the seven active pilot markets since 2013, it is still the spot contract which is mainly exchanged in markets. The forward contract will probably become the one most used when the national market starts. During September trading activity was limited overall, as was expected after the expiry of the compliance period (June or July depending on the pilot market). The Beijing pilot market quotas continue to maintain the highest prices (CNY 50-55/t), whilst the volumes traded have fallen significantly (2,300 tonnes in the whole month).

LEAVE A REPLY

Please enter your comment!
Please enter your name here