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Soft Commodity Trader: Vegetable Oils, Seeds, Pulses & Grains

On May 21-23, 2024, Argus Europe Carbon Conference was held in Nice, France. More than 150 people attended this year’s event. The conference brought together international speakers, traders and brokers, consumers, financial intermediaries and analysts and other delegates of the European carbon market. Among other participants MPC Primary Commodities SA attended the conference, and thoroughly examined the reports of the conference speakers, in particular, the influence of the carbon border adjustment mechanism (CBAM) on electricity trade. Researching this subject, it should be noted that electricity, unlike other CBAM-regulated goods, has unique trading mechanisms, sold on centralized, anonymized platforms before importation via cables. CBAM solely accounts for direct emissions, excluding upstream production emissions, indirectly impacting other sectors. National-level or power plant-specific exemptions and country-specific default values complicate CBAM regulation for electricity imports. It should be emphasized that CBAM provides exemptions, particularly for EU ETS sectors and imports from countries with linked emission trading systems to avoid double carbon pricing. Electricity exemptions require market integration, compliance with EU Energy & Climate Regulations, and commitments to achieve climate neutrality by 2050. Power plant-specific exemptions necessitate direct PPAs, EU grid connections, and strict emission limits. Otherwise, default CO2 values for domestic fossil fuel generation affect non-EU renewable energy imports. Besides, CBAM significantly affects neighboring regions. The UK, for example, faces challenges with its electricity exports to the EU. Research indicates CBAM could drastically reduce electricity flows through interconnectors, impacting UK investments and raising costs for EU consumers. Additionally, UK renewable energy production might decrease, potentially increasing EU carbon emissions—counter to CBAM's goals. The potential linking of the UK ETS with the EU ETS is crucial for future negotiations. In summary, CBAM is a major step in the EU's drive to reduce carbon leakage and promote sustainable energy practices. However, its application to electricity trading highlights the need for detailed regulations. Collaborative efforts among stakeholders are essential to address challenges and leverage opportunities. Insights from the Argus Carbon Conference stress the importance of policy frameworks and industry participation in shaping a sustainable European energy market.

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