Environmental commodities An expanding market Stathis Kourniotis - - PowerPoint PPT Presentation

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Oct 17, 2023 200 likes •314 views

Apostoli 58, 34100 Chalkida, Greece Tel:+30 22210 25314 info@ippc.gr www.ippc.gr Environmental commodities An expanding market Stathis Kourniotis IPPC Managing Director What is EU-ETS ? The European Union Emissions Trading Scheme (EU

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Environmental commodities An expanding market

Stathis Kourniotis IPPC Managing Director

Apostoli 58, 34100 Chalkida, Greece Tel:+30 22210 25314 info@ippc.gr www.ippc.gr

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What is EU-ETS ?

The European Union Emissions Trading Scheme (EU ETS), or EU Emissions Trading System, was

the first large greenhouse gas emissions trading scheme in the world, and remains the biggest.

It was conceived in Kyoto Protocol, back in 1997. It was introduced in EU in 2005 with the Directive

2004/87/EC.

Emission trading scheme began in January 2005. Now into 3nd Period (2013-2020)
The EU Emissions Trading Scheme aim:
to reduce emissions of greenhouse gases which are largely responsible for warming the planet

and causing climate change. Covers mainly CO2 emissions from:

industrial activities (power plants, oil refineries, construction

materials, fertilizers, etc.)

as well as emissions from aviation
all flights which arrive at or depart from an aerodrome

situated in the territory of a country that participates in EU ETS) since 2009.

The EU ETS covers more than 11,000 industrial plants in 31 European countries (as well as

Iceland, Liechtenstein and Norway).

In total, around 45% of total EU emissions

are controlled by the EU ETS.

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How EU-ETS works ?

The EU ETS is based on the so-called "cap-and-trade" approach:
each year the EU establishes a limit (cap) for overall emissions from power plants,

energy-intensive industry and commercial airlines covered by the system.

This 'cap and trade' system, that is to say it caps the overall level of emissions allowed but,

within that limit, allows participants in the system to buy and sell allowances as they require.

The scheme operates through the allocation

and trade of CO2 emissions allowances.

One allowance gives the holder the

right to emit 1 tonne of CO2.

Long

term goal

de-carbonization
f

EU economy.

These allowances are the common trading

'currency' at the heart of the system.

The cap on the total number of allowances

creates scarcity in the market.

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How EU-ETS works?

Every year at the end of April installations must surrender

allowances equivalent to their emissions.

penalties imposed for surrender less allowances to

€100 per ton of CO2

Companies that keep their emissions below the level of their

allowances can sell their excess allowances.

Those facing difficulty in keeping their emissions in line

with their allowances have a choice:

taking measures to reduce their own emissions (such

as investing in more efficient technology or using less carbon-intensive energy sources)

buying the extra allowances they need on the market,
a combination of the two.

Such choices are likely to be determined by relative costs.

In this way, emissions are reduced wherever it is most cost-

effective to do so. From 2013 onwards, the cap on emissions fixed installations is reduced by 1.74% every year. This means that in 2020, greenhouse gas emissions from these sectors will be 21% lower than in 2005. A separate cap applies to the aviation sector: for the whole 2013-2020 trading period, this is 5% below the average annual level

f emissions in the years

2004-2006.

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Carbon trading – a 14 years old story

March 2006: first emissions reports show serious overallocation, price drops from 30,50 (19/4) to 15,88 (30/6) March 2007: Market collapses to 1 €/EUA (2/4)

0,00 5,00 10,00 15,00 20,00 25,00 30,00 Jun-05 Oct-05 Feb-06 Jun-06 Oct-06 Feb-07 Jun-07 Oct-07 Feb-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19

2nd period starts. All 1st period EUAs cancelled. Price at 22,25 € (1/4). CER/ERU valid with 5-6 € spread Overallocation continues despite E.U. assurances. Price to 7,96 (12/2). CER/ERU spread to 0,5 €. Economic crisis also plays a role but is offseted by lower fuel prices 3rd period starts. Banking of EUAs ( carry

ver from one period to

the next) is allowed. Prices drop from 6,52 € (2/1) to 2,72 € (17/4) No more free allowances to electricity producers. Auctions become crucial CER/ERU prices fall sharply as international negotiations on climate change are at dead end. Since 2015, EU recognizes only CER issued by least developed and island countries. China, India, Brazil, S. Korea, etc. CER are out. EU intervenes with “backloading”. EUAs that should be auctioned in 2013 – 2015 are reserved for 2019 – 2020

auctions. Prices

gradually climb to 9 € More than 2 billion “floating” EUAs. Prices are dropping again.

Eur. Com. intends to

intervene again EU intervenes with “Market Stability Reserve” (MSR). From now on, the number of floating EUAs will be held within a range MIFID II reduces grey spot market

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Carbon trading in Greece

100 200 300 400 500 600 700 800 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Number of transactions involving the Greek Registry

1.350.002 6.234.000 8.929.000 19.667.000 45.205.000 10.000.000 20.000.000 30.000.000 40.000.000 50.000.000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Volume (EUAs)

The EU Registry publishes all data regarding

transactions with a time lag of 3 years

Up to 2008, transactions mainly involve sells of small

quantities to banks and brokers abroad

16-11-2006: First external transaction for the Greek

Registry, n iron & steel company transfers 1.000 EUAs to SOCIETE GENERAL

Until 2009 largest volume comes from a single

company (more that 50% of total)

For the years 2009 – 2011 a significant number of

transactions are under investigation due to suspicions for “carousel” fraud. In 2010 there are 90 suspicious transactions involving about 800.000 EUAs carried out by at least 3 companies a 2 personal accounts

In 2013, electricity producers start buying all the

allowances they need to surrender.

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International carbon trading schemes

The Korean Emissions Trading System (KETS) was launched on 1 January 2015, becoming East

Asia’s first nationwide mandatory ETS and the second-largest carbon market after the EU ETS. The ETS covers 591 emitters and 700 MtCO2 of emissions. The price of an allowance in 2018 was about 20,6 $.

China launched a plan to start an ETS scheme back in 2010. The idea is to start a number of

regional ETS that will converge to a national system by 2020. The regional ETS have been working since 2013. The system suffers from low reliability due to lack of strict technical rules for MRV. The expected energy market reforms will be a critical step for the Chinese ETS.

Japan Cap-and Trade program. It currently covers fuels consumption in commercial, residential and

industrial sectors. About 1,200 facilities and 65 MtCO2 are covered. Facilities are obliged to buy allowances from the state. The price of an allowance in 2018 was about 5,9 $.

New Zealand has introduces an ETS since 2008. The NZETS was considerably revised in 2015. It

covers 221 emitters and 78 MtCO2. NZETS allows for voluntary participation. The price of an allowance in 2018 was about 15,7 $.

Several regional ETS have evolved including USA and Canada areas. The biggest are RGGI

(Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, Vermont) and the Califoria cap-and-trade system.

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The future of EU ETS

In 2021 a new period (the 4th) starts. It will last for a decade (2021 – 2030) and is divided into two 5-

years sub-periods.

As in previous periods, Eur. Com. will decide the total number of allowances as well as the

number of allowances that will be given for free. The procedure ahs already started. The Greek installations that are eligible for free allocation have already verified their baseline scenarios.

A significant reduction of allowances is expected. Nevertheless, MSR will continue to be the

driving force.

Prices within the range 22 – 28 €/EUA are most likely within the next 6 months.
Prices up to 30 €/EUA are likely in 2020
4th period EUAs cannot be used to offset 3rd period emissions. This detail may cause an increase of

3rd period EUAs up to 35 €/EUA (projections up to 42 €/EUA have also been reported). PWC has estimated that a global carbon price of 50 € is required in order to meet the Paris objectives

CORSIA, the ICAO emissions trading scheme for international flights is expected to deliver emission

allowances at lower prices (likely to be less than 15 €/allowance). But this remains to be seen.

Eur. Com. would like to see a maritime industry emissions trading scheme. If IMO does not come

forward with a CORSIA-like scheme, it is likely that EU will ask ships to fully participate in EU ETS (since 2018 they participate in MRV only)

No interconnection between EU ETS and other emissions trading schemes is expected in the near
future. If such an interconnection becomes possible during the next decade, the market may change

dramatically.

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 ΙPPC specializes in environmental and climate change consulting. IPPC provides services that cover the requisitions of the EU ETS and assure the customer’s maximum environmental and financial benefit.  IPPC Ltd provides services in a large number of Industry and Aviation Operations which participate in the mandatory EU Emissions Trading Scheme in Greece, Cyprus and Bulgaria.  IPPC provides spot transactions brokerage services for its customers in accordance with MIFID II Directive and the Greek law