Emissions Trading / Carbon Market News (26/09/2022)

Ladies and Gentlemen

Last Friday, the Fridays for Future (FFF) movement had called for the 11th global climate strike since its founding in 2018. According to media reports, hundreds of thousands of people followed the call in many countries – in Germany alone, a total of around 280,000 mostly young people took part in the protest for climate protection and climate justice. In Berlin, FFF activist Luisa Neubauer said: “Those who think there is no way out are left with nothing but despair. Those who know that there is another way can get going and act. We have the knowledge, so let’s get going.”

In addition to the well-known appeals to achieve the 1.5-degree target, FFF called for the German government to establish a special fund for climate and security. As part of the budget negotiations, 100 billion euros should be made available to accelerate the radical phase-out of all fossil energies. The current energy crisis reveals how vulnerable society is in terms of energy supply. The climate and energy crises are mutually dependent.

One can only agree with this. At the latest with the start of the unbelievably stupid war against Ukraine, it became clear to everyone how dangerous the dependence on fossil energies is. It became even clearer that hesitation in phasing out fossil fuels would be wrong in every way. Therefore, the demands of some European politicians to intervene in the Emissions Trading Scheme (ETS) in order to make fossil energy cheaper seem all the more incomprehensible.

And it is not only FFF supporters who warn against rash decisions. According to the Börsenzeitung, banks, energy traders, energy exchanges as well as utilities are also mobilising with EU lawmakers against possible restrictions on the ETS. In a joint letter from eight European associations to the responsible leaders of the EU Commission and Parliament as well as the Czech Council Presidency, they warn that the current efficient functioning of the ETS could be significantly impaired, which could then also threaten Europe’s decarbonisation efforts. In the letter, the associations reiterated that a diverse ecosystem of participants ensures that the carbon market is resilient, easy and cost-effective to access. It would also be better equipped to offer hedging and risk management solutions to companies. To achieve its decarbonisation goals, the EU needs a liquid and resilient market.

The background for this appeal is the current final negotiations for a reform of emissions trading, which is part of the major climate package “Fit for 55”. One of the proposals of the EU Parliament is to restrict participation in trading with CO2 certificates to compliance agencies and certain financial intermediaries. This should help to prevent market speculation and thus be a step against high energy prices. The EU Commission and the vast majority of EU member states reasonably reject such a restriction. However, the associations concerned fear that these ideas could still become part of a compromise. The Czech EU Presidency is keen to finalise an agreement on the reform of the ETS in the fourth quarter.

The prices for EUA had again approached the 100 euro mark a little over a month ago, before the aforementioned statements deeply worried market participants. In the past trading week, the price had initially held in a sideways movement just above 70 euros for lack of direction, but on Friday EUAs then fell by up to 7.2% to a new six-month low as traders reacted to the news that Germany is also considering a larger revenue target through the sale of EUAs under the so-called “RePowerEU” plan. According to this, it is not only about making fossil energy cheaper through a lower carbon price, but also about special revenues from the sale of additional emission allowances from the Market Stability Reserve (MSR).

There are certainly other effective instruments for this. Moreover, such a plan not only contradicts the purpose of the ETS and the MSR, but it is also short-sighted, because the price collapse so far, which was based solely on uncertainty, has already meant that the EU has collected around 250 million euros less each week at the auctions than would have been possible with a solid auction result. So, what is supposed to be additional revenue in the short term would turn out to be a financial loss in the long term.

  (Average Quotes Exchange / OTC)   
EUA (Spot-Market)73.08 EUR65.61 EUR-7.47 EUR
EUA (December-2022-Future)73.27 EUR65.77 EUR-7.50 EUR
VCU (Voluntary Carbon Units ø)9.42 USD9.40 USD-0.02 USD
VER (Gold Standard Spotmarkt ø)4.18 USD4.03 USD-0.15 USD
nEZ (German National Carbon Units)30.00 EUR30.00 EUR+0.00 EUR
ICE Brent Crude Oil (Benchmark Future)91.46 USD86.75 USD-4.71 USD
EURO (Currency, Forex)1.0014 USD0.9690 USD-0.0324 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.)

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With kind regards,

ADVANTAG Services GmbH