Emissions Trading / Carbon Market News (28/10/2019)

Dear Sir or Madam,

Last week, the German Cabinet introduced a law to introduce a national emissions trading scheme for fuels. The aim is to gradually make the burning of fossil fuels for transport and heating more expensive, thus making the switch to climate-friendly alternatives more attractive. In return, the revenues will be refunded to the citizens in the form of reductions in the electricity price, in the commuting allowance and in the housing benefit, or invested in climate protection measures. The law now goes into parliamentary deliberations.

As Federal Environment Minister Svenja Schulze explained in more detail, emissions trading will start in 2021, initially with a fixed CO2 price of 10 euros per tonne. This corresponds gross to 2.8 cents per litre of petrol, 3.2 cents per litre of diesel, 3.2 cents per litre of heating oil and 0.2 cents per kilowatt hour of natural gas. In 2022, the price will then be 20 euros per tonne. 2023 to 2025 the certificates are issued with a rising fixed price (25-35 euro per ton CO2). In 2026, the certificates will be auctioned in a corridor of 35 euros to 60 euros per tonne of CO2. In 2025, the maximum and minimum prices for the period from 2027 onwards will be determined. However, citizens who use fossil fuels for heating or driving do not have to trade certificates themselves. This is the responsibility of the approximately 4000 gas suppliers, refineries and other companies that are subject to energy tax.

In the first five years, this new, national emissions trading scheme will basically act like a tax due to the fixed price and will only become a genuine market instrument from 2026, just as the mandatory European emissions trading scheme has been for a long time, which – after the appropriate political corrective measures – has also proved its worth.

Although the prices now fixed are separate from the ETS, they may provide some indication as to where the European pollution rights journey could lead in the coming trading period.

The fact that the introduction of the new emissions trading scheme in Germany is not really a national solo effort in the narrower sense was also made clear last week in Berlin at the International Carbon Pricing Week. Representatives from more than 50 countries and regions exchanged their experiences with carbon pricing instruments and also discussed new approaches to reducing greenhouse gas emissions. The conference made it clear that the number of countries using either a CO2 trading system or another CO2 levy to achieve climate neutrality is constantly growing.

A look at the well-established ETS shows a continuing uncertainty among market participants for the past trading week, which, among other influences, was caused by the still unresolved issue of Brexit. This strong uncertainty is reflected in a range between the highest and lowest price of a good two euros. This resulted in a price axis of 25.25 EUR. The CO2 market was unable to profit from the sharp rise in oil prices.

  (Average Quotes Exchange / OTC)      
Instrument 18/10/2019 25/10/2019 Change
EUA (Spotmarket) 25.87 EUR 24.95 EUR -0.92 EUR
EUA (December-2019-Future) 25.88 EUR 24.97 EUR -0.91 EUR
CER (Spotmarket) 0.21 EUR 0.20 EUR -0.01 EUR
ICE Brent Crude Oil (Benchmark Future) 59.29 USD 61.69 USD +2.40 USD
EURO (Currency, Forex) 1.1169 USD 1.1080 USD -0.0089 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. CER CP1 and ERU are eligible in ETS until end of March 2015 and must be swapped into 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