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Divisions deepen over carbon pricing ahead of IMO talks
Divisions deepen over carbon pricing ahead of IMO talks
Dubai, 27 April (Argus) — Shipping industry groups and governments enter a critical round of talks at the International Maritime Organisation (IMO) this week facing deepening divisions over how to cut emissions, with no clear consensus on the design or cost of decarbonisation. The 84th meeting of the IMO's Marine Environment Protection Committee (MEPC), being held in London, follows a previous meeting in October that ended without agreement on a global emissions framework. IMO secretary=general Arsenio Dominguez later described the outcome as a "small setback", while stressing that the sector's decarbonisation efforts remain on track. At the centre of the dispute is the proposed net-zero framework (NZF), which includes a carbon pricing mechanism intended to accelerate the shift to low-emission fuels. Supporters see the framework as a necessary investment signal, while critics warn it would impose costs the sector is not yet equipped to absorb. A coalition spanning shipowners, shipping companies and ship registries — including Liberia, Panama and the Marshall Islands, which together account for a large share of the global fleet — has called for alternative approaches to be considered. The group has warned that support for the NZF "in its current form" has eroded. It is pushing for a more flexible, technology-neutral framework that would allow continued use of transitional fuels such as LNG and biofuels, while avoiding penalty-based mechanisms that could raise costs for operators and consumers. In contrast, a separate coalition of ports, logistics firms and clean fuel developers has urged governments to adopt the NZF, arguing that further delays would undermine investment in alternative fuels and slow the energy transition. The divergence highlights a deeper split within the shipping ecosystem. Shipowners and flag states are prioritising cost, fuel availability and operational feasibility at a time of heightened disruption in energy markets caused by the Iran war, while fuel suppliers and infrastructure developers are seeking regulatory certainty to underpin long-term investments. EU countries are expected to continue backing a carbon levy. The US has opposed such measures, which contributed to the postponement of a decision at last year's IMO meeting. Dominguez has also pointed to the current geopolitical environment — including disruptions to energy markets and shipping routes — as reinforcing the need to balance energy security, affordability and sustainability, a dynamic increasingly shaping the sector's approach to decarbonisation. Industry sources aligned with developing countries within the IMO told Argus that proposals based on carbon pricing or penalty mechanisms risk distorting trade flows and placing a disproportionate burden on emerging economies. They instead favour a more "pragmatic" and technology-neutral approach that reflects differing levels of fuel availability, infrastructure and economic capacity. The sources added that support from major flag states is procedurally significant, noting that backing from countries representing a large share of the global fleet will be critical to reaching any agreement. The result is a negotiation that is as much about cost allocation and regulatory design as it is about climate ambition. With no final decision expected at this week's meeting, discussions are likely to extend through the year, leaving shipowners, fuel producers and investors facing continued uncertainty over the future regulatory framework. Shipping accounts for around 3pc of global emissions and carries roughly 80pc of world trade, underscoring the importance of the IMO process for global energy markets and supply chains. By Bachar Halabi Send comments and request more information at feedback@argusmedia.com Copyright © 2026. Argus Media group . All rights reserved.
Q&A: Weather derivatives grow on higher renewables
Q&A: Weather derivatives grow on higher renewables
London, 27 April (Argus) — Weather volatility is playing an increasing role in power and gas markets as renewables capacity expands and supply-demand balances tighten. Traditional price hedges capture part of this uncertainty, but often leave weather-driven volume and shape risks unaddressed, pushing market participants to explore weather derivatives as a complement to standard hedging strategies. Argus spoke to Theresa Kammel and Pierre Buisson from German reinsurance firm Munich Re about where the exposures lie and how firms are using the expanding toolkit of weather derivatives. Edited highlights follow: In power and gas, what do weather derivatives solve that standard price hedges do not? Weather derivatives provide a direct and efficient hedge for weather-driven volume risk. With a weather derivative, an energy retailer can directly hedge the impact of a cold spell on gas consumption, or a wind farm owner can hedge how many megawatt hours a wind fleet actually generates. For these exposures, they offer a more direct form of risk transfer than standard price hedges. They are also increasingly leveraged by utilities and commodity traders as hedges against the impact of weather conditions on prices. Weather derivatives allow market participants to isolate the weather component in price formation and trade the underlying fundamentals of power or gas without having to worry about weather outcomes in delivery. As weather increasingly drives physical flows and intraday price dynamics, weather risk has become a first-order earnings variable rather than a secondary uncertainty. For someone used to futures and options, what is the right way to think about a weather derivative? Weather derivatives are standard financial derivatives. Instead of a commodity price, the underlying factor is an objective weather index — temperature, wind, solar irradiation, precipitation or a generation proxy index. Settlement is always in cash. There is no physical delivery. They can be thought of as a Lego box. The peril, location — or basket — risk period, strike and payout structure (swap, option, collar, exotic) are combined in multiple ways to closely match the underlying exposure. For example, a gas retailer concerned about a milder-than-expected winter could buy a heating degree day option linked to cumulative temperatures over January. If the index settles below a predefined strike, the contract pays out automatically in cash based on the shortfall. Settlement is objective and does not require proof of physical loss. How do you break down "weather risk" in energy markets? The answer is threefold — volume risk, average price risk and shape risk. First, volume risk — how much energy is produced or consumed relative to expectations. Historically, weather primarily affected demand through temperatures but today, risk is shifting to the supply side as renewables capacity increases. Second, average market price risk — adverse weather conditions impact energy prices. Cold winter temperatures lift gas prices, dry and low wind conditions push power prices higher, while sunny summers increasingly weigh on power prices. Finally, shape risk — on an hourly level, weather conditions are now putting significant pressure on our power systems and asset economics. High wind and solar output can trigger negative prices, while day-ahead, top-bottom spreads are directly linked to weather volatility, etc. Weather derivatives are now commonly customised to hedge these effects directly. Which parts of a power portfolio are most exposed to weather in ways traditional hedges cannot capture? Any cash flow that depends on realised weather, not just energy prices. Renewables generation is the clearest example, but the exposure is much broader. Temperature drives heating and cooling demand — particularly important nowadays with the development of heat pumps — and therefore retail margins. Hydro output depends on rainfall and snowmelt timing, and many trading books carry implicit exposure to wind and solar conditions. Consider a portfolio long on power. A trader may be confident that prices will be higher by spot delivery based on fundamentals, but the position remains exposed to wind and solar conditions at delivery. Strong renewables output could force power to be sold at significantly lower-than-expected prices. Such losses are difficult to hedge with price instruments alone but can be directly mitigated using weather derivatives linked to renewable output or temperature. Are you seeing more interest in wind and solar products specifically? Yes. With tighter capacity margins, even a few weeks of adverse weather can now materially impact earnings by tens of millions of euros. Wind and solar variability has become a system-wide P&L [profit and loss] driver. When output underperforms, conventional generation is called upon to fill the gap and prices jump. As a result, demand is rising not only for wind and solar generation indices, but also for residual load proxies and critical-period structures that respond to system stress events, typically associated with dunkelflaute conditions. What seasonal patterns do you observe in weather hedging activity? In Europe, activity clusters around key risk windows. Winter temperature risk, peak wind seasons, sunny spring and summer months and hydro refill and snowmelt periods. A notable trend is growing demand for flexible structures that allow notionals to be adjusted as the season unfolds, rather than fixed far in advance, reflecting the dynamic nature of modern energy portfolios and the tremendous uncertainty in energy supply. Which products are most liquid today, and how should liquidity be understood in this market? The market remains predominantly OTC [over the counter], traded under ISDA, alongside some standardised exchange contracts. Liquidity is defined pragmatically as the ability to obtain competitive quotes for key perils, regions and tenors, and to resize or unwind positions as exposures evolve. For dynamic energy portfolios and trading books, this practical liquidity matters more than continuous screen trading. How do you see exchange and OTC trading coexisting going forward? A hybrid model is likely to emerge. Exchanges will serve the most standardised exposures, offering transparency and clearing, while OTC markets will remain essential for bespoke needs such as specific locations, hybrid pay-offs or multi-peril structures. Standardisation is likely to expand where it adds value, while customisation will remain central to the OTC weather derivatives market, where bespoke risk transfer solutions are traded. W hat is the biggest misconception about weather hedging — and the key takeaway? Rather than a single misconception, what stands out is the uneven maturity of the weather derivatives market. Numerous large companies are extremely active with dedicated weather trading desks, while some well-known firms remain largely absent. Active participants tend to take a more advanced approach to risk management, but this is very much an open market for all. As awareness grows, participation is likely to broaden. As for a key takeaway, weather derivatives allow energy companies to hedge a clearly identifiable, objectively measurable risk driver — the weather itself — in a transparent, cash-settled way. When layered on top of price hedges, they complete the hedge stack and turn earnings volatility into a manageable financial variable. By Helen Senior Send comments and request more information at feedback@argusmedia.com Copyright © 2026. Argus Media group . All rights reserved.
Carbon - In focus: Corsia debate heats up with EU draft
Carbon - In focus: Corsia debate heats up with EU draft
London, 24 April (Argus) — The EU's draft proposal to impose additional eligibility criteria on credits approved for the first phase of the Carbon Offsetting and Reduction Scheme for International Aviation (Corsia) used by European Economic Area (EEA)-based operators, while intended at supporting integrity and quality of credits, could dampen confidence in the scheme by fragmenting the market and making it increasingly difficult for airlines to comply, and posing a higher burden on EU airlines, market sources told Argus. The European Commission aims to adopt the implementing act that lays out the requirements for Corsia credits in the second half of 2026. A draft proposal discussed at the European Commission's expert group on climate change policy (CCEG) seen by Argus earlier this week suggested additional criteria for credits used by EEA-based operators to comply with Corsia obligations could render nearly all of the existing Corsia Phase 1 (CP1) tagged supply ineligible for the bloc. This "represents preliminary ideas and not an official position of the commission," a commission official told Argus on 24 April. According to the proposal, projects crediting existing stocks of carbon through high forest, low deforestation (HFLD) methodologies — such as the Guyana-based forestry project registered on the ART-TREES registry which currently has 25mn CP1-tagged credits of the 34mn tagged in total so far — and from projects whose fraction of non-renewable biomass (fNRB) is above the host country value, as adopted in Table 3 of version 3.0 of TOOL33 of the Clean Development Mechanism. The proposed rules suggest clean cookstove projects could cancel some of their credits to reach the volume they would have issued with an appropriate fNRB value and become eligible ex-post. This would leave with just about 10pc of existing credits eligible. It is also unlikely any developer takes this path. "I cannot see any project developer voluntarily sacrificing credits ex-post," a developer told Argus, adding that even if the EAA airlines would pay for the revenue differential, by doing this, developers would implicitly be agreeing that their initial math was flawed to prospective non-EAA airlines. The commission is proposing to set Article 6 of the Paris Agreement (PA) as a benchmark for credits to be purchased and cancelled by EAA airlines as part o their Corsia obligations, a "clear signal in support of environmental integrity and Article 6, including the Article 6.4 of the PA crediting mechanism … the best-in-class on credits' quality," the official said. Adding that the proposal for CP1 aimed at providing airlines with more flexibility for their compliance compared with Phase 2, "while excluding credits with the lowest environmental integrity." Some developers speaking to Argus raised concerns that industry players may unfairly infer that this rule speaks to the quality and integrity of HFLD and other related methodologies in the future, which may have ripple effects into the wider voluntary carbon market. That said, one intermediary said they would "rather have a strong scheme than have another [mainstream media] attack on the market." The market could form an argument that metered methodologies with accurate emissions reduction calculations are useful and even necessary, another source said. Price to soften on tepid demand The proposed criteria for EEA airlines could lead to market fragmentation if approved, and cost operators based in the bloc much more to comply with Corsia compared with their non-EEA peers. Many market stakeholders were digesting the proposed rules throughout the week, but said these might temporarily pressure prices for CP1-tagged credits, provided that none of the existing compliant credits — except the 500,000 generated by a methane reduction project in Uzbekistan which just received the tag on 24 April — meet the criteria. EAA airlines may switch to project types different to the existing supply to fulfil their obligation under Corsia Phase 1, and allow non-EAA airlines to snap up the remaining credits at relatively lower prices. CP1 demand from EEA countries is estimated to count for around 10-15pc of the total projected demand for this phase, for emissions generated in 2024-26. The EU applies its own emissions trading scheme (EU ETS) for any intra-EEA flights, and only applies Corsia for extra-EEA flights. Further out, prices for CP1-tagged credits could face further pressure as the market nears the deadline for submitting biennial transparency reports — greenhouse gas inventory submissions to the UN. This is when host countries will have to apply corresponding adjustments — stamp emissions reductions for export and acknowledge they will not be counted towards its nationally determined contribution to avoid double counting. Prices could face a sustained fall with an even greater pool of supply against stagnant demand, a market source said. Shifting supply pipelines In response to tightening restrictions on supply from the EU, developers could adjust their project pipelines to tap into an emerging two-tiered pricing structure and sell at a premium in the EAA. For instance, most developers of methane reduction projects in countries that have capacity to approve exports under Article 6 of the Paris Agreement by providing a letter of authorisation are targeting Corsia, some said. One such project in Asia that received a letter of authorization (LoA) from its host country this month could supply about 700,000 credits into the scheme. But the developer is facing delays in obtaining insurance, and therefore the CP1 tag. Regardless, it is targeting to sell to Asian end users, Argus understands. "We expect more [CP1-compliant] supply to come online. It is key to uphold higher quality for credits, and we hope to orientate future supply in the right direction. We will strike a balance between this and allowing EEA airlines to meet their offsetting obligations," the commission official told Argus. But this will come at a cost for European carriers. "It's not the same being unable to comply due to [an overall] lack of supply and being unable to comply due to restrictions imposed by your government that fall outside the scheme's rulebook," the intermediary source said. Further supply could come from large-scale renewable energy or non-jurisdictional reducing emissions from deforestation and forest degradation credits. But this would be a step back from the commitment to quality highlighted in the EU draft proposal. Renewable energy methodologies were rejected by the Integrity Council for the Voluntary Carbon Market (ICVCM) for its high-integrity Core Carbon Principles tag in 2024 because they had broadly not considered additionality, a principle that proves a project would not be able to exist without carbon finance. Although, the ICVCM expects one new renewable energy methodology currently under development may receive the CCP label in the near future, Argus understands. Fragmented pricing, for a while A temporary two-tiered pricing structure could emerge driven by regional supply restrictions, until prices merge when extra-EAA participants soak up the credits that would not be eligible in the EAA, and developers adjust projects based on the prevailing sub-market, some said. One developer currently holding CP1-tagged credits said they were not taking any forward-looking decisions based on this proposal alone. Developing or transferring projects can take months, depending on registry administrative capacity, with little time for the new project pipeline to recalibrate in line with new EU criteria. Therefore, adopting the implementing act in the current proposal's shape would make it more difficult for European airlines to comply and raise their costs. Reducing supply and narrowing a globally standardised approach is a "sub-optimal outcome for all concerned ," a market source said. What next? In its current form, the proposal does not send a signal of confidence to stakeholders, and may affect ongoing tenders and future CP1 demand. In recent weeks a large EU-based carrier was seeking significant volumes for compliance — for about 6mn spot tagged credits — with a view to purchasing by June or July. The said carrier was likely aware about the EU concerns already, as they asked suppliers to offer guarantees should the EU put extra layers of requirements for eligibility of credits in the terms of the request for proposals (RFP), a source involved in the auction said. The European Commission told Argus on 24 April that it will adopt the final implementing act on the criteria for credits for EEA airlines to meet their Corsia offsetting obligations in the second half of this year. This will likely follow a wider review of the EU ETS expected to be announced in July, whereby the commission will also express an opinion whether it thinks the Corsia scheme is sufficient for the aviation sector to meet Paris Agreement objectives or whether it believes the EU ETS should be extended to international flights. "We urge all partners to continue the momentum under the internationally agreed cleaner energy, innovation, operational improvement, and market-based mechanisms that function together to drive progress towards net zero carbon emissions by 2050," a spokesperson from the International Civil Aviation Organization (Icao) — which is the body managing the Corsia scheme — told Argus. Adding that they would not comment on the position of external parties. By Alexandra Luca Send comments and request more information at feedback@argusmedia.com Copyright © 2026. Argus Media group . All rights reserved.
TCO increases Brazil's corn ethanol margins
TCO increases Brazil's corn ethanol margins
Sao Paulo, 24 April (Argus) — Domestic sales and exports of technical corn oil (TCO) will boost Brazilian corn ethanol plants' margins, as the sector looks to monetize byproducts. Brazil will produce 10.5bn liters (181,230 b/d) of corn ethanol and, consequently, around 453.9mn liters of TCO — byproduct of corn-based ethanol production — in 2026, according to the Corn Ethanol Strategy Report from Argus ' consulting division. The report expects TCO production is expected to jump to 691.8mn liters by 2035, in line with the expansion of corn ethanol production to 16bn liters. TCO serves as a third source of revenue for corn ethanol plants, behind ethanol and a class of dried grains — including those without solubles (DDG) and those with solubles (DDGS). TCO's price is currently based on references for other oils, such as soybean oil or used cooking oil (UCO), with a premium or discount applied. Processing one metric tonne (t) of corn yields 420 liters of ethanol, 212kg of DDGS and 19kg of TCO, equivalent to about 20 liters. Because TCO generates more decarbonization credits than other inputs, the strongest demand for it comes from the biofuel industry. TCO can be used as a feedstock for biodiesel, hydrotreated vegetable oil or sustainable aviation fuel (SAF). Producers see opportunities in the foreign market, notably in Europe, where residual feedstocks generate credits that make the final product more valuable. This differs from the Brazilian domestic market, which lacks tax incentives for biofuels derived from waste. TCO, which is more acidic than UCO and soybean oil, ends up being traded at a discount in the domestic market because it has a lower yield than other oils and fats. Corn ethanol plants eyeing arbitrage opportunities are seeking to certify their production to expand exports of TCO and TCO-based biofuels. The feedstock is already being directed toward the biodiesel industry. PBio, a biofuels subsidiary of state-controlled energy company Petrobras, carried out its first export of biodiesel produced from TCO to Europe in September, in partnership with the local corn ethanol giant Inpasa. Other biodiesel producers are showing interest in expanding their presence in the international market, especially due to their idle production capacity, which is leading them to seek out alternative raw materials for production. The expectation is that new SAF biorefineries will also demand TCO to be used via the hydroprocessed fatty acids and esters route. bids from the SAF industry for TCO tend to be higher than those from the biodiesel sector, given the higher returns on aviation fuel, According to market participants. Although part of the sector is targeting international markets, the lack of certification for some corn ethanol plants and freight costs — both road and sea — may keep most volumes in Brazil. Most corn ethanol and TCO producers are concentrated in the central-westERN state of Mato Grosso, home to most biodiesel plants. The positioning could facilitate logistics of domestic sales. By Natalia Dalle Cort, Maria Lígia Barros, and Joao Marinho Send comments and request more information at feedback@argusmedia.com Copyright © 2026. Argus Media group . All rights reserved.
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