Emissions Trading / Carbon Market News (13/11/2023)

Dear Madam or Sir,

This year’s United Nations World Climate Change Conference (COP28) in Dubai begins on 30 November and ends on 12 December. Since 2018, the conference has been complemented by the meeting of the parties to the Paris Agreement. Among other things, the EU will be calling for the phase-out of fossil fuels by 2050.

But global plans to subsidise fossil fuels stand in stark contrast to the goal of limiting global warming to 1.5 degrees. This is the conclusion reached by the United Nations Environment Programme (UNEP) and leading research institutes, universities and think tanks in a recent report, the Production Gap Report. It suggests that the amount of coal, oil and gas that countries plan to produce by 2030 is more than twice as much as would be compatible with the target agreed in the Paris climate agreement.

 “Governments’ plans to expand fossil fuel production undermine the necessary energy transition to net zero emissions, create economic risks and put the future of humanity at risk,” said UNEP Executive Director Inger Andersen.

However, in a vote on their demands for the UN Climate Change Conference last Tuesday, members of the European Parliament’s Environment Committee agreed that climate action needs to be accelerated in all areas to meet the goals of the Paris Agreement, and agreed to phase out fossil fuel subsidies by 2025 at the latest.

At the same time, the Brussels-based NGO Finance Watch warns against underestimating the impact of climate change on the economy and the financial system. Economists model climate risks in the same way as traditional financial risks, the organisation says in a report. “This means that economic models do not take into account that the damage caused by climate change will be exceptionally large, unpredictable and permanent,” writes the organisation, which produces specialist analyses of financial markets. As a result, current models lull policymakers into a false sense of security.

The price of European emission allowances fell to a new one-year low just below the 75 euro mark in the middle of last trading week, as traders continued to build up short positions in the face of very low demand and energy markets extended recent losses. The demand outlook in the energy sector remained subdued due to the mild weather, high wind power production and high gas storage levels.

The market recovered significantly in the second half of the week, peaking at EUR 78.86 for the December benchmark contract. Wednesday’s Commitment of Traders (CoT) figures had shown that investment funds had built up the largest total short position in two years and the largest net short position on record, giving the impression that traders were waiting now for the right time to rally.

Indeed, the sizeable short position could act as a limiting factor for further declines, but on the other hand, a real turnaround should be supported by a significant change in the market environment. Indeed, the substantial short position could act as a limiting factor for further price declines, but on the other hand, a real turnaround should be supported by a significant change in the market environment. But gas stocks have reached record highs in the European Union and further LNG supplies are on the way, making price increases rather unlikely. In Germany, industrial production contracted for the fourth consecutive month, which also clouds the outlook for electricity prices. As long as these factors remain influential, the prospects of a breakout of the EUA’s downtrend channel appear rather slim.

      (Average Quotes Exchange / OTC)   
EUA (December-2023-Future)77.64 EUR78.70 EUR+1.06 EUR
VER (Natural Carbon Offsets)1.06 USD0.86 USD-0.20 USD
VER (CORSIA eligible Carbon Offsets)0.59 USD0.56 USD-0.03 USD
nEZ (German National Carbon Units)30.00 EUR30.00 EUR+0.00 EUR
ICE Brent Crude Oil (Benchmark Future)85.02 USD81.55 USD-3.47 USD
EURO (Currency, Forex)1.0729 USD1.0684 USD-0.0045 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