Co2 Market

Greenlight to the new cyclical mechanism for the Chinese companies of the single pilot markets

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The data on 2016 verified emissions published by the European Commission on 3rd April show a 2.8% decrease compared to 2015. The reduction concerns especially the thermoelectric sector, which registers a drop of well 4.4 % to 967 Mt.

The price of the EUA was about 5.5 €/t at the beginning of March, to then drop below 5 €, without going above this threshold for the whole month of march and for a large part of April.

Donald Trump’s policies in the United States appear to be a real serious setback within the international framework of the fight against climate change.

According to a recent statement by Icao officials, the admission pre-requisites for the Corsia compensation programme of the International Civil Aviation Organisation (Icao) will be communicated by the end of this year.

Europe

The ETS emission permits on the European markets, which were exchanged at around 5.5 €/t at the beginning of March, soon went below the 5 € threshold, to then close the month at 4.70 €/t. The quotation still finds it difficult to reach 5 €, being slightly below this level for the entire month of April, in spite of approaching of the 2016 compliance deadline on 30th April.

The data published on 3rd April on 2016 verified emissions, amounting to a total of 1752.6 Mt, show an overall decrease of 2.8% compared to 2015. This data mainly concerns the thermoelectric sector, where the decrease registered was 4.4%.

After the Parliament and Council February votes, March was a relatively quiet month as regards developments in the revision of phase IV of market exchange.

The first trialogue meeting took place on 4th April and was followed by other three meetings held between April and May. The reform approval procedure, which is currently being negotiated between the three European institutions, will foreseeably come to an end soon after the summer, presumably during the month of September.

Also aviation is regulated by the carbon market and airlines must notify emissions for all flights entering or landing in European airports. Unlike other sectors, emissions in the aviation sector have increased by 8% to 61.6 Mt last year.

Sector 2016 2015 Mt change % change
Power & Heat 967,1 1011.5 -44,4 -4,4%
Industry 785,5 791,5 -6,0 -0,8%
-Metals 184,2 190.2 -6.0 -3,1%
-Cement, lime, glass 180,4 179.7 0,7 0,4%
-Oil and gas 187,6 186.9 0,7 0,4%
-Other 201,8 202,9 -1.1 -0,5%
-Paper and pulp 31,5 31.3 0,2 0,7%
Total EU ETS (w/o aviation) 1752,6 1803.0 -50.4 -2,8%
Aviation 61,6 57,1 4.5 8,0%
Total EU ETS (incl. Aviation) 1814,3 1860.1 -45.8 -2,5%

EU ETS emissions 2015 and 2016. Source: Reuters.

North America

A few months after taking office, during the month of March Donald Trump clearly showed his view on the climate change policies he intends to pursue. During the presentation of the 2018 budget he clearly showed his intention to support the fossil fuels industry to the detriment of environmental programmes, which a suffered significant cuts up to over 31%, i.e. about 2,4 billion dollars, as reported by the US Environmental Protection Agency EPA. At the same time, the President signed an executive order (EO) to repeal Obama’s environmental policies. Among other things, the executive order sees for the possibility to suspend or even completely cancel the regulations adopted so far. This behaviour is perfectly in line with the promises made before the elections, which since the very beginning have leveraged the support to the coal industry to the detriment of the development of the green economy.

The commitment made by the US within the long expected Paris agreement is seemingly not spared by this evolution. As a matter of fact, the agreement has not yet been approved by Congress and might be cancelled by the President. The Paris issue, though, appears to be more delicate. Cancelling the entire Unfccc process might be too much of a radical stance for Trump himself. Some members of the same Trump Administration, including Donald Trump’s daughter Ivanka, as well as several groups of companies, including the Secretary of State and the former Exxon businessman Rex Tillersons, have namely advised the President to continue abiding by this international pact.

China

In the first months of 2017 an increase of activities on the Chinese ETS markets have been registered, compared to the previous months. A total of about 3.6 million emission permits were exchanged in March, slightly less than the 3.8 registered in February.

The National Development Research Commission (Ndrc) submitted a plan for the development of the national ETS market to all the 31 local governments. The plan was confidential, however some unreleased details could be revealed from a lost paragraph. These included the intention to to start the exchange of emission permits only at a first stage, while offset credits will be introduced on the market at a later stage. The Ndrc held an annual meeting to discuss the issues related to climate change, which can be interpreted as a sign of the imminent implementation of the national ETS system. Ndrc Vice director Zhang Yong stated that CO2 emission per GDP unit was reduced by 6.6% compared to 2015, exceeding the 3.9 objective.

In his opinion, the Chinese national market will presumably concern four main sectors: the thermoelectric, aviation, cement and steel sectors.

Pilot Price Mar 31 [CNY/Tonne] End-month price change [%] Mar allowance traded volume [tones]
Shenzhen 36,67 24 % 110,151
Shanghai Spot 38,64 1 % 214,010
Forward 41,22  16 % 624.800
Beijing 52,14 -5 % 328,638
Guangdong 15,37 2 % 1,872,663
Tianjin 13,55 76,000
Hubei 16.6 -5 % 268,474
Chongqing 6 -66 % 8.936
Fujian 34.6 -6 % 112.288
Total 3,615,960

Pilot markets prices and volumes. Source: Reuters.

March marked the start of the new cyclical mechanism, which includes reporting, verification and compliance obligations for the Chinese companies of the individual pilot markets. All installations on the Shanghai market notified their emissions for the year 2016. For higher data accuracy, Guangdong decided to set up a unique independent audit system that involves a number of auditors who are deemed to be reliable in the decision-making process of the local ETS and will have the responsibility to view and evaluate the audit reports.

Tianjin published its 13th five-year plan on the regulation of greenhouse gas emissions for the 2016-2020 period, with which it stated its objectives of reduction per GDP unit of 20.5 % less compared to 2015. The ETS in Tianjin has remained stagnant due to the excessive allocation of emission shares.

Korea

The price of Korean emission permits (KAUs-2016) registered a 13% reduction in March, closing the month at 20,600 KRW (i.e. about 16,5 Euros).

At the end of March, the Korean government adopted amendments providing for less stringent conditions for the reintroduction of the Co2 emission units of the market stability reserve. Based on the previous rules, Co2 emission units could be readmitted to the market only if the price of the emission units had been above the average price, currently equal to 35,000 won (i.e., $ 31.22), registered in the previous two years for over a month.

The new rules, instead, enable the issue of further emission units if supply decreases. The government has furthermore introduced a series of regulations aiming at penalising those companies which do not sell their excess shares (normally because they foresee the need to buy them in the future) by reducing their allocations for the 2018-2020 period.

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