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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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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📄💡 New paper published in Nature Energy showing that the ten-fold surge of carbon prices in the EU emissions trading system (EU-ETS) over the last five years were not only due to tighter emission caps, but also due to increased political commitment, which made firms more farsighted. in short: *Policy credibility is a key component for an effective and efficient EU emissions trading system!* 💡 The EU-ETS is one of the central policy instruments to reduce GHG emissions in the EU. Over the course of two large reforms over the last five years, prices surged ten-fold. ❓📈 Why did carbon prices in the EU-ETS increase so strongly? ❓🔭 Does it matter for carbon prices whether firms only care about the current trading period, or whether they also consider the future certificate scarcity after 2030? ❓⚙ Can we use the unique opportunity of the two major ETS reforms and the resulting price increases to test how farsighted firms were in the past? 🛠💻⚙ We used the power sector/EU-ETS model LIMES-EU to model carbon prices emerging from the pre- and post-reform emission caps under two different model settings. One setting assumed that firms were farsighted and considered future scarcities; the other setting assumed that actors focused on the short-term. 💡⚡ We find that the price change following the EU ETS/MSR reform in 2018 is *not* mainly due the change of the emission cap as widely assumed. The full price increase can only be explained if the reform also has made actors more farsighted. 🔭 In general, if actors do not consider the long-term cap on emissions to be credible, they will minimize their costs to achieve the short-term cap only, missing intertemporally efficient emission reductions and potentially creating stranded assets from misinvestments. 💲💲 The price effect of policy credibility is substantial, as near-term price levels in a farsighted market (high credibility) are about *three times higher* than in a short-sighted market (low credibility). 👍💪 The Fit-for-55 package tightened the emission cap a lot, elevating prices to a level of around 80 €/tCO2, consistent with what model results suggest is dynamically cost-effective. Going beyond the paper itself: ⚠ 📜 Policymakers should take precautions to sustain high credibility and strengthen commitment if prices drop again to levels that signal low credibility – as happened in the last months 📉 🔥 Better refrain from actions that undermine policy credibility, such as trying to raise funds by auctioning additional allowances (REPowerEU 👀) - this can undermine market actor's trust in long-term stable caps. If this damages policy credibility, the strong drop in carbon prices could lead to *lower* total auction revenues! Check out the paper (open access): https://lnkd.in/emJ52Gm8 #EUETS Many thanks for the great collaboration Joanna Sitarz, Gunnar Luderer, Sebastian Osorio and Michael Pahle ! PIK - Potsdam Institute for Climate Impact Research
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New paper out by colleagues and me on the role of credibility for price formation in the EU-ETS. See excellent summary by Robert Pietzcker below. Some further remarks by me, recalling the Financial Times article from February stating that "Europe’s carbon price crash looks like serious market myopia" (https://lnkd.in/exrj9dQu): That is very much the point/contribution of our paper. One can only isolate and thus diagnose the effect of credibility properly by employing a counterfactual, i.e. looking at how prices would have developed with a different degree of credibility. This is exactly what we do in our work. Important remark on methodology: we equate different time horizons with different degrees of credibility. But actually shifting horizons can also have other reasons (see the excellent paper by Simon Quemin for more: https://lnkd.in/ewGxKt5i). So to be precise: our findings are CONSISTENT with the assumption that the last two reforms increased the credibility of the EU ETS. Okay, I guess no one really doubted that - but now we have "proof" 😉
📄💡 New paper published in Nature Energy showing that the ten-fold surge of carbon prices in the EU emissions trading system (EU-ETS) over the last five years were not only due to tighter emission caps, but also due to increased political commitment, which made firms more farsighted. in short: *Policy credibility is a key component for an effective and efficient EU emissions trading system!* 💡 The EU-ETS is one of the central policy instruments to reduce GHG emissions in the EU. Over the course of two large reforms over the last five years, prices surged ten-fold. ❓📈 Why did carbon prices in the EU-ETS increase so strongly? ❓🔭 Does it matter for carbon prices whether firms only care about the current trading period, or whether they also consider the future certificate scarcity after 2030? ❓⚙ Can we use the unique opportunity of the two major ETS reforms and the resulting price increases to test how farsighted firms were in the past? 🛠💻⚙ We used the power sector/EU-ETS model LIMES-EU to model carbon prices emerging from the pre- and post-reform emission caps under two different model settings. One setting assumed that firms were farsighted and considered future scarcities; the other setting assumed that actors focused on the short-term. 💡⚡ We find that the price change following the EU ETS/MSR reform in 2018 is *not* mainly due the change of the emission cap as widely assumed. The full price increase can only be explained if the reform also has made actors more farsighted. 🔭 In general, if actors do not consider the long-term cap on emissions to be credible, they will minimize their costs to achieve the short-term cap only, missing intertemporally efficient emission reductions and potentially creating stranded assets from misinvestments. 💲💲 The price effect of policy credibility is substantial, as near-term price levels in a farsighted market (high credibility) are about *three times higher* than in a short-sighted market (low credibility). 👍💪 The Fit-for-55 package tightened the emission cap a lot, elevating prices to a level of around 80 €/tCO2, consistent with what model results suggest is dynamically cost-effective. Going beyond the paper itself: ⚠ 📜 Policymakers should take precautions to sustain high credibility and strengthen commitment if prices drop again to levels that signal low credibility – as happened in the last months 📉 🔥 Better refrain from actions that undermine policy credibility, such as trying to raise funds by auctioning additional allowances (REPowerEU 👀) - this can undermine market actor's trust in long-term stable caps. If this damages policy credibility, the strong drop in carbon prices could lead to *lower* total auction revenues! Check out the paper (open access): https://lnkd.in/emJ52Gm8 #EUETS Many thanks for the great collaboration Joanna Sitarz, Gunnar Luderer, Sebastian Osorio and Michael Pahle ! PIK - Potsdam Institute for Climate Impact Research
EU carbon prices signal high policy credibility and farsighted actors - Nature Energy
nature.com
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The latest research from ECEMF, published in Nature Energy, explores the significant impact of reforms to the European Union Emissions Trading System (EU ETS) on carbon prices. The research highlights how these policy changes, particularly the Market Stability Reserve (MSR) reform and the "Fit for 55" package, have shifted market actors from short-term, myopic decision-making to farsighted approaches. This change in foresight has contributed to the sharp rise in carbon prices since 2017. The study models different scenarios, showing that, before 2018, market behaviour was largely short-sighted, which kept prices low. However, as the MSR reform and "Fit for 55" targets were implemented, prices surged, reflecting stronger policy signals and anticipating future scarcity in emissions allowances. The authors (Joanna Sitarz, Michael Pahle, Sebastian Osorio, Gunnar Luderer & Robert Pietzcker) suggest that these reforms not only tightened emissions caps but also improved the credibility of long-term EU climate goals, leading to a more stable and predictable market environment. This growing confidence among market participants has been a crucial driver of recent price increases. This research underscores the importance of well-designed policies in steering market behaviour toward long-term decarbonization goals. By promoting long-term planning, the EU ETS reforms have had a more significant impact on carbon pricing, which is essential for achieving deep emissions reductions. Read more in the open-access Nature Energy article: https://lnkd.in/dwXjnybV
EU carbon prices signal high policy credibility and farsighted actors - Nature Energy
nature.com
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We kindly invite you all to attend our webinar this Wednesday "Credibility makes or breaks the price: political commitment in long-term climate policy key for effective EU emissions trading system" where we present and discuss our new paper 📜 published in Nature Energy showing that the ten-fold surge of carbon prices 📈 in the EU emissions trading system (EU-ETS) over the last five years were not only due to tighter emission caps, but also due to increased political commitment, which made firms more farsighted 🔭. in short: *Policy credibility is a key component for an effective and efficient EU emissions trading system!* ⏰ When: June 19 2024, 2:00 pm CEST Registation: https://lnkd.in/eGMSSn8D Title: “Credibility makes or breaks the price: political commitment in long-term climate policy key for effective EU emissions trading system” 👨🏫 Speaker: Robert Pietzcker leads the National Energy Transitions Team in the Energy Systems group at the Potsdam Institute for Climate Impact Research (PIK). A physicist and economist by training, his work focuses on analyzing the energy transition in the EU and Germany, and providing insights on the climate policies needed achieve greenhouse gas neutrality. 👨🏫 Moderator: Johannes Emmerling, RFF-CMCC European Institute on Economics and the Environment (EIEE),, Fondazione Centro Euromediterraneo sui Cambiamenti Climatici (CMCC) 📝 Paper abstract: Carbon prices in the EU emissions trading system (EU ETS) are a key instrument driving Europe’s decarbonization. Between 2017 and 2021, they surged tenfold, exceeding 80 €/tCO2 and reshaping investment decisions across the electricity and industry sectors. What has driven this increase is an open question. While it coincided with two significant reforms tightening the cap (“MSR reform” and “Fit for 55”), we argue that a reduced supply of allowances alone cannot fully explain the price rise. A further crucial aspect is that actors must have become more farsighted as the reform signaled policymakers’ credible long-term commitment to climate targets. This is consistent with model results that show historic prices can be better explained with myopic actors, while explaining prices after the reforms requires actors to be farsighted. To underline the role of credibility, we test what would happen if a crisis undermines policy credibility such that actors become myopic again, demonstrating that carbon prices could plummet and endanger the energy transition. Link to the paper: https://lnkd.in/emJ52Gm8. ☀ Looking forward to your questions!
📄💡 New paper published in Nature Energy showing that the ten-fold surge of carbon prices in the EU emissions trading system (EU-ETS) over the last five years were not only due to tighter emission caps, but also due to increased political commitment, which made firms more farsighted. in short: *Policy credibility is a key component for an effective and efficient EU emissions trading system!* 💡 The EU-ETS is one of the central policy instruments to reduce GHG emissions in the EU. Over the course of two large reforms over the last five years, prices surged ten-fold. ❓📈 Why did carbon prices in the EU-ETS increase so strongly? ❓🔭 Does it matter for carbon prices whether firms only care about the current trading period, or whether they also consider the future certificate scarcity after 2030? ❓⚙ Can we use the unique opportunity of the two major ETS reforms and the resulting price increases to test how farsighted firms were in the past? 🛠💻⚙ We used the power sector/EU-ETS model LIMES-EU to model carbon prices emerging from the pre- and post-reform emission caps under two different model settings. One setting assumed that firms were farsighted and considered future scarcities; the other setting assumed that actors focused on the short-term. 💡⚡ We find that the price change following the EU ETS/MSR reform in 2018 is *not* mainly due the change of the emission cap as widely assumed. The full price increase can only be explained if the reform also has made actors more farsighted. 🔭 In general, if actors do not consider the long-term cap on emissions to be credible, they will minimize their costs to achieve the short-term cap only, missing intertemporally efficient emission reductions and potentially creating stranded assets from misinvestments. 💲💲 The price effect of policy credibility is substantial, as near-term price levels in a farsighted market (high credibility) are about *three times higher* than in a short-sighted market (low credibility). 👍💪 The Fit-for-55 package tightened the emission cap a lot, elevating prices to a level of around 80 €/tCO2, consistent with what model results suggest is dynamically cost-effective. Going beyond the paper itself: ⚠ 📜 Policymakers should take precautions to sustain high credibility and strengthen commitment if prices drop again to levels that signal low credibility – as happened in the last months 📉 🔥 Better refrain from actions that undermine policy credibility, such as trying to raise funds by auctioning additional allowances (REPowerEU 👀) - this can undermine market actor's trust in long-term stable caps. If this damages policy credibility, the strong drop in carbon prices could lead to *lower* total auction revenues! Check out the paper (open access): https://lnkd.in/emJ52Gm8 #EUETS Many thanks for the great collaboration Joanna Sitarz, Gunnar Luderer, Sebastian Osorio and Michael Pahle ! PIK - Potsdam Institute for Climate Impact Research
EU carbon prices signal high policy credibility and farsighted actors - Nature Energy
nature.com
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European carbon fell below €55 a ton for the first time in more than two years as falling gas prices combine with mild weather and soaring renewable energy production to sap demand for permits to pollute. Benchmark carbon futures have dropped 44% in the past 12 months. It’s a decline that reverses years of expectations that the European Union carbon price could only rise as the bloc ramps up its climate goals.
European Carbon Slumps 5% to Lowest in More Than Two Years - BNN Bloomberg
bnnbloomberg.ca
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Regulated carbon markets saw their prices rise in August, while the voluntary market faced difficulties linked to the quality of credits and a lack of liquidity. L’article Rising carbon prices in regulated markets, vagueness on voluntary markets est apparu en premier sur energynews.
Rising carbon prices in regulated markets, vagueness on voluntary markets
https://energynews.pro/en/
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The EU’s carbon market is set to tighten from 2026 due to a shortage of allowances fuelled by the EU’s RePowerEU policy and could return to near record highs, a leading carbon analyst has told Montel ... #carbon #market #eu
Carbon could return to EUR 100/t from 2026 – analyst
energetika.net
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👏 vn NEW | Vietnam ETS: Around 100 entities will be added in the pilot scheme (2025-2027) 🏛️ In a preparation for the launch of the national ETS starting from 2028, the Ministry of Natural Resources and Environment (MoNRE) is finalising the revised version of Decree 06/2022/ND-CP, which articulates the roadmap for establishing Vietnam ETS. ➡ As revealed by the Deputy Minister of the MoNRE, around 100 entities active in the fields of thermal power, iron and steel production would be included in the pilot scheme. 🏭💨 Vietnam is harnessing efforts in gathering emission inventories from big emitters, which according to Article 6.1 of Decree 06/2022/ND-CP comprise those with annual emissions from three thousand tons of carbon dioxide equivalent, thermal power plants and industrial production facilities with total annual energy consumption from one thousand tons of oil equivalent; freight transport companies with total annual fuel consumption from one thousand tons of oil equivalent. 🔜Pilot carbon trading platform(s) are expected to operate from 2025. According the revised draft of Decree 06/2022/ND-CP, power plants and industrial facilities will receive their allowances by the end of 2024. 🔗Source: https://lnkd.in/e3YEStdE An excellent wrap-up by Carbon Pulse: https://lnkd.in/exJJFcia
Carbon market pilot around the corner
vir.com.vn
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🏭 China’s mandatory national carbon market launched in 2021 with the primary aim of encouraging companies to pay attention to their emissions. So far, only companies with large coal-fired power generation have needed to comply. But other sectors, such as steelmaking, are set to join soon. ✍️ Xu Nan explores the impact of expanding the market beyond power generation https://loom.ly/pUBkRV0
China’s carbon market is moving from burden to boon
dialogue.earth
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