Emissions Trading / Carbon Market News (07/11/2022)

Dear Madam or Sir,

Since yesterday, representatives from around 200 countries are meeting for this year’s World Climate Conference in Sharm el-Sheikh, Egypt. However, the COP27 is taking place under difficult conditions: With the Corona pandemic no longer at the forefront, the Russian war of aggression in Ukraine and the resulting energy crisis threaten to weaken the global community’s common fight against global warming, and the increasing tensions between the USA and China are not a supportive factor either.

At the same time, the states still have a lot of catching up to do when it comes to naming or sharpening their national climate protection goals. A serious commitment to move away from fossil fuels, especially coal, despite or precisely because of the energy crisis, to press ahead with the reduction of the greenhouse gas methane and to finally introduce a mechanism for financing climate-related damage and losses are also marked deep red on the agenda.

It also remains an exciting question to what extent Europe and the USA can and want to become a driver of change from the side of the main polluters. In any case, the European programme “Fit for 55” seems to point in the right direction, if it is not adopted in too much of a weakened form at the end of the trilogue negotiations. And here again, the ETS, the European Emissions Trading Scheme, plays an important role. In this context, the institutions are still struggling to correct the excessively high total number of emission allowances once, to introduce a border adjustment mechanism (CBAM) to protect against distortion of competition, to include maritime transport and to sharpen the market stability reserve. Perhaps the results of Sharm el-Sheikh can provide tailwind here. Statements by MEP Peter Liese already suggest that funds from the ETS auctions could be used for climate protection measures in poorer countries.

Moreover, the World Climate Conferences are regularly intended to raise awareness among politicians and the public of the absolute urgency of the climate problem. The warnings always focus on the so-called tipping points, where interactions build up a tragic dynamic that could eventually become irreversible. For example, it is well-known that the Arctic is getting warmer much faster than the rest of the planet. According to a study by the CREAF research centre in Barcelona, this warming of the Arctic threatens to lead to a vicious circle. Experts refer to this as “Arctic amplification”. This is partly due to the fact that the earth’s surface is absorbing more heat due to the decrease in snow and ice cover on water and land. As a result, even a relatively small amount of warming in Siberia could significantly increase the extent of wildfires in the future. This would release large amounts of carbon stored in the permafrost there. And this, in turn, would further drive global warming.

The study analysed, among other things, satellite images of wildfires in the Siberian Arctic from 1982 to 2020. In these almost forty years, 44 per cent of the total fire area was accounted for by the last two years 2019 and 2020! According to the study, almost 150 million tonnes of carbon were released into the atmosphere by fire in these two years. This corresponds to a CO2 equivalent of almost 413 million tonnes. In 2020 alone, 423 fires burned over an area of almost 3 million hectares, according to the study. According to a statement by the Spanish National Research Council (CSIC), which was involved in the work, the released CO2 equivalent of 256 million tonnes is roughly equivalent to the annual CO2 emissions of Spain. It is also noteworthy that 2019 and 2020 were simultaneously the two warmest years of the study period.

Carbon trading had a classic chart run last week. The rally of the previous week ended at the so-called 200-day line at around 81 euros. The price then fell back in a retracement to almost 75 euros, where it found sufficient support. The market then sought orientation in a wide trading range of around four euros for the rest of the trading week. Here, the still persisting uncertainty with regard to possible interventions in the ETS does not make trading decisions any easier for both buyers and sellers.

  (Average Quotes Exchange / OTC)   
EUA (Spot-Market)81.16 EUR76.32 EUR-4.84 EUR
EUA (December-2022-Future)81.21 EUR76.36 EUR-4.85 EUR
VCU (Voluntary Carbon Units ø)6.75 USD8.07 USD+1.32 USD
VER (Gold Standard Spotmarkt ø)3.36 USD3.21 USD-0.15 USD
nEZ (German National Carbon Units)30.00 EUR30.00 EUR+0.00 EUR
ICE Brent Crude Oil (Benchmark Future)96.17 USD98.60 USD+2.43 USD
EURO (Currency, Forex)0.9964 USD0.9960 USD-0.0004 USD

(The average exchange quotes and OTC-prices shows the average between bids and ask of several exchanges and OTC markets for carbon emission rights in the ETS. Bid and ask has usually in Spot Market a visible spread. The VER quotes are average rates (carboncredits.com), which can be used within the framework of CORSIA and voluntary carbon offsetting. 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