Emissions Trading / Carbon Market News (16/10/2023)

Dear Madam or Sir,

On 1 October, the phased introduction of the European Carbon Border Adjustment Mechanism (CBAM) started. The way it works is very simple: companies that want to deliver steel, iron, aluminium, cement, fertiliser as well as electricity and hydrogen to the EU have to pay roughly the same carbon price at the border that European companies already had to pay via emissions trading – at least as far as they cannot prove a comparable climate levy in their own country. In step with the phased introduction of the “climate tax”, European companies will find their previous free allocations of EUAs reduced to zero.

A test phase has been in place since the beginning of this month, in which companies initially only have to report how many tonnes of CO2 the production of imported goods has caused. The first reports are to be submitted at the end of January 2024. Only at the beginning of 2026 will the border adjustment actually have to be paid. By 2030, all goods covered by EU emissions trading are to be included.

Even if the reporting obligation is very detailed and therefore burdensome, CBAM offers companies significantly more planning security. In addition, the levy creates financial pressure for a faster switch to low-carbon technologies, both within and outside the EU. As a positive side effect, the EU can expect billions in additional revenue.

Last week, of course, was dominated by the disgusting attack by Hamas terrorists on unsuspecting people in Israel’s immediate neighbourhood of the Gaza Strip. Since then, the world has been holding its breath at the potential threat of a conflagration. Political measures ranging from the dispatch of aircraft carriers to permanent diplomacy are intended to help prevent worse. In response, the global financial, energy and commodity markets have reacted rather cautiously to this new flashpoint.

The forward contract TTF for delivery in one month, which is the benchmark for the gas price in Europe, already rose to EUR 41.80 per megawatt hour (MWh) on the Amsterdam exchange on Monday and reached its highest level since the end of February on Friday with up to EUR 56.10. However, the war in Israel hardly played a role in this rally. Rather, the price was influenced by other supply risks as well as weather forecasts. The temporary closure of a large natural gas field in the Mediterranean, the damage-related closure of the pipeline between Finland and Estonia and the risk of a strike in the Australian natural gas industry are causing uncertainty in the market. But despite the recent increases, the price of European natural gas is still well below the level it reached after Russia’s invasion of Ukraine. At times last year, more than 300 euros per megawatt hour were due. Russia had sharply curtailed its gas deliveries to Europe, which is why replacements had to be found. At present, however, the European natural gas storage facilities are well filled. Only the oil price showed more pronounced fluctuations, but here, too, there is no talk of panic so far.

The carbon market was pulled strongly upwards from Monday, but the 85 euro mark already proved to be a strong resistance on Tuesday. From Thursday onwards, this line was overcome, but the EUA subsequently failed at the 200-day line. On Friday, a short-term high of EUR 86.60 was recorded in late trading. If there are no further fundamental reasons this week, the EUA should initially continue to move sideways in a narrow range.

  (Average Quotes Exchange / OTC)   
EUA (December-2023-Future)80.46 EUR85.95 EUR+5.49 EUR
VER (Natural Carbon Offsets)1.74 USD1.60 USD-0.14 USD
VER (CORSIA eligible Carbon Offsets)0.74 USD0.75 USD+0.01 USD
nEZ (German National Carbon Units)30.00 EUR30.00 EUR+0.00 EUR
ICE Brent Crude Oil (Benchmark Future)84.45 USD86.00 USD+1.55 USD
EURO (Currency, Forex)1.0588 USD1.0514 USD-0.0074 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