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.

(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

Dear Madam or Sir,

The Carbon Border Adjustment Mechanism (CBAM), is an important instrument of the European Union for pricing greenhouse gas emissions that occur outside the EU and are subject to little or no pricing there.

From January 1, 2024, imported products made from iron, steel, aluminium, iron ore, hydrogen, electricity, cement, ammonia, potassium nitrate and fertilizers will be recorded and reported.

If there is a price for CO2 or its equivalents in the country of origin, these must also be stated. The carbon border adjustment system is part of the “Fit for 55” package. The aim of the system is to price the emissions associated with the production of imported goods in the same way as they do for production within the EU.

To do this, the person who imports goods must, in the next step, purchase so-called CBAM certificates, whereby one CBAM certificate corresponds to the emissions of one ton of CO2. The price of the CBAM certificates based on the price of the EU emissions allowances (EUA).

CBAM applicants must purchase most CBAM certificates in the year of import, but no later than at the end of the quarter after importing goods, and hold 80% of the certificates. Up to a third of excess certificates purchased can be sold back to the EU member states.

The plan is for a gradual introduction between 2026 and 2034, with a parallel gradual “phasing out” of free certificates.

Deliveries of goods up to EUR 150 are exempt from the reporting requirement. However, a corresponding number of intentional and unintentional violations can be assumed.

The CBAM certificates will be sold to approved applicants at the price of an EU ETS certificate (EUA) via a common central platform set up and managed by the EU Commission. It is currently unclear to what extent intermediaries or other service providers can provide support to the companies affected.

The price of the EU emissions allowances underlying the CBAM has been in a sideways-downward channel since mid-March and last week this was broken downwards, and the EUA even ended the trading week below the channel.

If the EUAs do not manage to sustainably return to this trend channel, it cannot be ruled out that prices could move towards 73 euros. Should the bullish sentiment return, the next resistance would be the 38-day line, which is currently at 82.79 euros, followed by the 200-day line, which is currently at 86.54 euros.

Companies obliged to participate in German national emissions trading system should now make relatively valid calculations for their need for national emissions certificates (nEZ) for the current year, as 2023 certificates will only be available indefinitely for the next five weeks. The last auction with a fixed price of 30 euros will take place on December 7, 2023. After that, only an additional purchase option of 10% is possible; from next year the nEZ will cost 10 euros or 33% more, i.e. 40 euros per nEZ.

(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

Dear Madam or Sir,

Ukraine is expected to meet all the requirements to join the European Union, and thus the Emissions Trading Scheme (ETS), in the foreseeable future. The Stockholm Environment Institute (SEI) is now launching a project to develop a roadmap for Ukraine’s climate neutrality by 2050, n-tv reported on Sunday. According to the report, Bernardas Padegimas, head of SEI’s environmental policy and strategy team, told the high-level international conference “United for Justice, United for Nature” in Kiev: “We will start actively working on the project and discussing it at different levels. The aim is to help Ukraine achieve climate neutrality through a green transition and recovery”. The development of the project will be funded by the Swedish government. The Minister of Environmental Protection and Natural Resources, Ruslan Strilets, told the same conference that law enforcement agencies are investigating more than 2,500 crimes against the environment as a result of the military aggression of the Russian Federation. The total environmental damage currently amounts to 55 billion euros. According to its Prosecutor General, Ukraine is the first country in human history to investigate crimes committed by occupying forces against the natural environment as war crimes.

For heavy industry in particular, the use of green hydrogen will play a crucial role in reducing CO2 or its equivalent in other greenhouse gases (CO2e) in the future. An important aspect is the decoupling of production and consumption in time and space. Regeneratively produced hydrogen can achieve this and thus represents an important alternative to the gaseous and liquid fossil fuels used to date in the context of the energy transition.

The question of the most environmentally friendly means of transport is also important in this context. Germany’s extensive natural gas network is ideally suited to transporting hydrogen as close to the user as possible, thus making an important contribution to the transition to a climate-neutral economy. The first pipeline is currently being prepared in Lower Saxony. It is the first of its kind in Germany, Open Grid Europe (OGE) announced in Essen. The natural gas from the 46-kilometre-long pipeline section between Lower Saxony and North Rhine-Westphalia will first be pumped into other pipelines. The pipeline will then be upgraded so that it can be used to transport hydrogen, probably from 2025. Converting existing pipelines to hydrogen is undoubtedly a fast and cost-effective way to enter a powerful and efficient nationwide hydrogen network.

The future border tax on CO2 emissions (CBAM) will inevitably affect the behaviour of exporters to the EU. It is therefore not surprising what the news agency Bloomberg reported from China last Thursday. According to the report, China’s Ministry of Environmental Protection has streamlined and centralised the annual reporting process for large companies in seven heavy industries. Previously, emissions reports were managed at the local level. The aim of the new regulations is to help exporters meet the requirements of the CBAM before it comes into full effect in 2026.

European carbon prices fell sharply last week. The correction began on Friday last week and continued until Tuesday. From their high of EUR 86.60 for the 23 December futures contract, EUAs fell by a whopping EUR 5. The market then recovered briefly, but remained volatile until the end of the week. Although there are signs of further price falls, investment funds may start to close a significant part of their short positions before the winter. The resulting rise in prices could in turn attract further buyers and push prices higher.

(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

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.

(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