Emissions Trading / Carbon Market News (06/11/2023)

Dear Madam or Sir,

The Carbon Border Adjustment Mechanism (CBAM), is an important instrument of the European Union for pricing greenhouse gas emissions that occur outside the EU and are subject to little or no pricing there.

From January 1, 2024, imported products made from iron, steel, aluminium, iron ore, hydrogen, electricity, cement, ammonia, potassium nitrate and fertilizers will be recorded and reported.

If there is a price for CO2 or its equivalents in the country of origin, these must also be stated. The carbon border adjustment system is part of the “Fit for 55” package. The aim of the system is to price the emissions associated with the production of imported goods in the same way as they do for production within the EU.

To do this, the person who imports goods must, in the next step, purchase so-called CBAM certificates, whereby one CBAM certificate corresponds to the emissions of one ton of CO2. The price of the CBAM certificates based on the price of the EU emissions allowances (EUA).

CBAM applicants must purchase most CBAM certificates in the year of import, but no later than at the end of the quarter after importing goods, and hold 80% of the certificates. Up to a third of excess certificates purchased can be sold back to the EU member states.

The plan is for a gradual introduction between 2026 and 2034, with a parallel gradual “phasing out” of free certificates.

Deliveries of goods up to EUR 150 are exempt from the reporting requirement. However, a corresponding number of intentional and unintentional violations can be assumed.

The CBAM certificates will be sold to approved applicants at the price of an EU ETS certificate (EUA) via a common central platform set up and managed by the EU Commission. It is currently unclear to what extent intermediaries or other service providers can provide support to the companies affected.

The price of the EU emissions allowances underlying the CBAM has been in a sideways-downward channel since mid-March and last week this was broken downwards, and the EUA even ended the trading week below the channel.

If the EUAs do not manage to sustainably return to this trend channel, it cannot be ruled out that prices could move towards 73 euros. Should the bullish sentiment return, the next resistance would be the 38-day line, which is currently at 82.79 euros, followed by the 200-day line, which is currently at 86.54 euros.

Companies obliged to participate in German national emissions trading system should now make relatively valid calculations for their need for national emissions certificates (nEZ) for the current year, as 2023 certificates will only be available indefinitely for the next five weeks. The last auction with a fixed price of 30 euros will take place on December 7, 2023. After that, only an additional purchase option of 10% is possible; from next year the nEZ will cost 10 euros or 33% more, i.e. 40 euros per nEZ.

      (Average Quotes Exchange / OTC)   
EUA (December-2023-Future)79.35 EUR77.64 EUR-1.71 EUR
VER (Natural Carbon Offsets)1.41 USD1.06 USD-0.35 USD
VER (CORSIA eligible Carbon Offsets)0.65 USD0.59 USD-0.06 USD
nEZ (German National Carbon Units)30.00 EUR30.00 EUR+0.00 EUR
ICE Brent Crude Oil (Benchmark Future)88.79 USD85.02 USD-3.77 USD
EURO (Currency, Forex)1.0578 USD1.0729 USD+0.0151 USD

(The VER quotes are average rates (carboncredits.com), which can be used within the framework of CORSIA and voluntary carbon offsetting. EUA, Crude Oil and Euro Currency shows day-end-exchange quotes. This market information has just an informational character and are no advice or offer to trade carbon emission rights or their futures and options. If you want to unsubscribe, please reply to this mail.)

Please call our international carbon desk if any further questions exist: +49.2831.1348220.

With kind regards,

ADVANTAG Services GmbH