‘More stable’ EU ETS prices under lower MSR rate
Lowering the intake rate of the EU emissions trading system's (ETS) market stability reserve (MSR) as planned in the coming years will lead to less volatility in the carbon market than if the current rate is retained under higher emission cut scenarios, according to a report published this week.
The MSR tackles oversupply in the carbon market by removing 24pc of excess permits from circulation each year, an intake rate that under current plans will fall to 12pc from 2024. The rate is one of the aspects of the mechanism under consideration as part of a scheduled review of the MSR by the European Commission this year.
Modelling for a European Roundtable on Climate Change and Sustainable Transition (ERCST) report has found that under a "likely" scenario of a 2030 emissions cut target of 63pc for EU ETS-covered sectors, a 12pc MSR intake rate applied from 2024 onwards "guarantees a more stable price environment", as it avoids price spikes.
Maintaining a 24pc absorption rate past this point "would lead instead to price instability without significant additional benefits in terms of emission reductions", the report concludes.
"EU industry would likely better cope with a smooth upward carbon price' trajectory over the trading phase rather than a bumpy one," the report emphasises, which is particularly significant as decarbonisation efforts begin to shift from the power sector to industry.
A 24pc rate could however be useful in the case of a 55pc 2030 emissions cut target for EU ETS sectors, the report says, as it would help to avoid a collapse in carbon prices in the second half of this decade.
Increased flexibility
ERCST's report finds that a more flexibile MSR is needed to ensure the mechanism copes with changes in the market over the coming years.
This is specifically a shift in hedging patterns from the power sector to industry, potential larger holdings of allowances by speculative investors, and the effect of overlapping EU climate policies that will "likely further affect the MSR intakes and ultimately the price impact of the MSR".
This flexibility could come in the form of either more frequent reviews, which are currently scheduled to take place once every five years, or more dynamic parameters, such as varying intake rates at different surplus thresholds.
Reacting to the presentation of the report, Italian utility Enel's Daniele Agostini called dynamic parameters a "very good idea".
But both he and German investment bank Commerzbank's Ingo Ramming warned against increasing the frequency of MSR reviews, emphasising the importance of transparency and predictability in regulatory measures.
Agostini also urged the retention of the 24pc intake rate beyond 2023 to remove the surplus of allowances in the market.
While Brussels-based environmental think-tank Carbon Market Watch's Sam van den Plas argued that the rate should be increased to 36pc "sooner rather than later" to ensure the strength of the mechanism, particularly in the context of a rapidly decarbonising power sector.
He pointed to a report published by the Potsdam Institute for Climate Impact Research this week, which suggests Europe could almost completely phase out coal-fired power by 2030, under a scenario of 63pc emission cuts for EU ETS sectors.
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G7 countries put timeframe on 'unabated' coal phase-out
G7 countries put timeframe on 'unabated' coal phase-out
London, 30 April (Argus) — G7 countries today committed to phasing out "unabated coal power generation" by 2035 — putting a timeframe on a coal phase-out for the first time. The communique, from a meeting of G7 climate, energy and environment ministers in Turin, northern Italy, represents "an historic agreement" on coal, Canadian environment minister Steven Guilbeault said. Although most G7 nations have set a deadline for phasing out coal-fired power, the agreement marks a step forward for Japan in particular, which had previously not made the commitment, and is a "milestone moment", senior policy advisor at think-tank E3G Katrine Petersen said. The G7 countries are Italy — this year's host — Canada, France, Germany, Japan, the UK and the US. The EU is a non-enumerated member. But the pledge contains a caveat in its reference to "unabated" coal-fired power — suggesting that abatement technologies such as carbon capture and storage could justify its use, while some of the wording around a deadline is less clear. The communique sets a timeframe of "the first half of [the] 2030s or in a timeline consistent with keeping a limit of 1.5°C temperature rise within reach, in line with countries' net-zero pathways". OECD countries should end coal use by 2030 and the rest of the world by 2040, in order to align with the global warming limit of 1.5°C above pre-industrial levels set out in the Paris Agreement, according to research institute Climate Analytics. The countries welcomed the outcomes of the UN Cop 28 climate summit , pledging to "accelerate the phase out of unabated fossil fuels so as to achieve net zero in energy systems by 2050". It backed the Cop 28 goal to triple renewable energy capacity by 2030 and added support for a global target for energy storage in the power sector of 1.5TW by 2030. The group committed to submit climate plans — known as nationally determined contributions (NDCs) — with "the highest possible ambition" from late this year or in early 2025. And it also called on the IEA to "provide recommendations" next year on how to implement a transition away from fossil fuels. The G7 also reiterated its commitment to a "fully or predominantly decarbonised power sector by 2035" — first made in May 2022 and highlighted roles for carbon management, carbon markets, hydrogen and biofuels. Simon Stiell, head of UN climate body the UNFCCC, urged the G7 and G20 countries to lead on climate action, in a recent speech . The group noted in today's outcome that "further actions from all countries, especially major economies, are required". The communique broadly reaffirmed existing positions on climate finance, although any concrete steps are not likely to be taken ahead of Cop 29 in November. The group underlined its pledge to end "inefficient fossil fuel subsidies" by 2025 or earlier, but added a new promise to "promote a common definition" of the term, which is likely to increase countries' accountability. The group will report on its progress towards ending those subsidies next year, it added. Fostering energy security The communique placed a strong focus on the need for "diverse, resilient, and responsible energy technology supply chains, including manufacturing and critical minerals". It noted the important of "guarding against possible weaponisation of economic dependencies on critical minerals and critical raw materials" — many of which are mined and processed outside the G7 group. Energy security held sway on the group's take on natural gas. It reiterated its stance that gas investments "can be appropriate… if implemented in a manner consistent with our climate objectives" and noted that increased LNG deliveries could play a key role. By Georgia Gratton Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
UN eyes policy crediting for carbon markets
UN eyes policy crediting for carbon markets
Berlin, 30 April (Argus) — The UN is considering extending the scope of carbon mitigation credit generation under the Paris climate agreement to policy implementation. The UN's climate arm has tasked research institute Perspectives Climate Group senior founding partner Axel Michaelowa with drawing up a paper on how to incorporate policy crediting into the new carbon market being developed under Article 6.4 of the Paris deal. This is expected to be finalised by the UN Cop 29 climate conference in Azerbaijan in November following persistent disagreements between countries at previous summits. Policy crediting is increasingly viewed as crucial amid the rising urgency to scale up mitigation activities, Michaelowa said at an industry event in Zurich yesterday. But policy crediting presents challenges, such as how to determine the additionality of the instruments for mitigation efforts. The World Bank, which developed the first ever policy crediting activity — the Transformative Carbon Asset Facility — in 2016, determines additionality indirectly as the difference between the facility's baseline and actual emissions. Michaelowa believes this is insufficient, urging separate additionality tests to prove the policy instrument mobilises mitigation. An eligible policy instrument typically closes the cost gap between mitigation and business-as-usual technologies, Michaelowa said. "Creditable" policy instruments are mandates, or financial incentives, for deploying low-carbon technologies or behaviours. Policies that reverse previous bad governance by eliminating obstacles to mitigation activities also qualify, Michaelowa said, for example a grid operator enforcing a stop on renewable power growth to ensure grid stability, as investments in the grid would be too costly. Uzbekistan signed an agreement under the World Bank's facility in June 2023 under which it can sell carbon credits issued for the emissions reductions resulting from its cuts to high fossil fuel subsidies. The resulting funds are used to mitigate the impact of rising energy prices on the lowest income consumers, and fund awareness campaigns on the need for cost-covering energy tariffs. Uzbekistan expects to reduce its emissions by 60mn t of CO2 equivalent (CO2e) between 2022-27 as a result of the cuts, of which 2mn-2.5mn t CO2e are attributed directly to the facility's intervention, funded with $46.25mn by donor countries to result in a carbon price of between $18.50-23.12/t CO2e. The World Bank is looking at other countries and sectors to apply the lessons learned from the Uzbekistan pilot, its senior climate finance specialist Nuyi Tao said. By Chloe Jardine Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Germany urges closer NDC-climate finance link
Germany urges closer NDC-climate finance link
Berlin, 26 April (Argus) — German federal chancellor Olaf Scholz today stressed the need for nationally determined contributions (NDC) to the Paris climate deal to provide a framework and incentive for climate finance. NDCs — emissions cut targets which countries must draw up and regularly update under the Paris agreement — should provide "clear roadmaps for decarbonisation" to incentivise and reassure private investors, Scholz said at the 15th Petersberg climate dialogue in Berlin, a forum which paves the way for the UN Cop climate conference negotiations later this year. Drawing up an NDC is also about creating good framework conditions for investments in the individual countries themselves, Scholz said. In updating their NDCs, countries have an opportunity to secure investments in green technologies, he said. "Private investors are concerned about a reliable regulatory framework and good governance." Scholz echoed German foreign minister Annalena Baerbock's remarks made at the opening yesterday, when she proposed an "interlocking" of countries' NDCs with investment plans. Baerbock stressed the idea goes beyond getting the countries together to improve their NDCs. It would, for instance, ensure that fossil fuel producers announcing plans to reduce their production do not get penalised by a cut to their credit rating on the financial markets, she said. And it would be about facilitating matchmaking between the private sector in developed countries, and bringing together the ambitions enshrined in the NDCs with instruments ensuring they can be financed, Baerbock said. She gave the example of Barbados, which she said is using its NDC "not just as a national climate action plan but also as a national investment plan", by creating a bank that brings together various factors "linking climate-policy planning, project implementation, and public and private financing". Both Scholz and Baerbock reiterated calls for larger developing countries that have "significantly" contributed to emissions in the past 30 years, and which have the financial means to contribute, to do so. Cop 29 will be held in Baku, Azerbaijan, in November. Finance will be a key topic as countries must decide on a new global goal, the so-called New Collective Quantified Goal (NCQG) on Climate Finance, to replace the pledge missed by developed countries to give $100 bn/yr to developing countries by 2020. Baerbock called for a new annual climate finance budget for developing countries of $1 trillion. Germany plans to modernise its bilateral debt conversion programme, Scholz said. "This is not a panacea, but vulnerable middle-income countries that are willing to reform could also be eligible for climate debt conversion in the future," he said. By Chloe Jardine Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
MDBs, parties must deliver on finance: Cop 29 president
MDBs, parties must deliver on finance: Cop 29 president
Edinburgh, 25 April (Argus) — Cop 29 president-designate Mukhtar Babayev pointed to insufficient action from multilateral development banks (MDBs) despite encouraging discussions, and urged all countries to play their part to deliver on climate finance negotiations this year. Climate finance discussions will be an important part of climate negotiations this year, having been "one of the most challenging climate diplomacy topics over the years", Babayev said today at the 15th Petersberg climate dialogue in Berlin — a forum for multilateral discussions. The meeting is a key milestone in climate discussions, paving the way for Cop 29 negotiations. The topic will be key as countries must decide on a new global finance goal to replace the $100bn/yr by 2020 pledge to developing countries made in 2009 and missed by developed countries. Babayev said he was working with a range of actors including MDBs, which have a "special role" as "multilateral public finance contributed the single largest part of the [$100bn/yr] target". Babayev said progress from the MDBs was essential, but while he "had many encouraging engagements during the World Bank and IMF spring meetings in Washington last week , we heard a great deal of concern and worry that we did not yet see adequate and sufficient action". "That must change," he said. He also warned that there is no single initiative able to unlock and increase climate finance flows to trillions of dollars, and instead pointed to "many interconnected elements" that countries will need to consider to set this new finance goal — the so-called NCQG. He added that the NCQG working group has already identified many options. "We know that [there are] strong and well-founded views on all sides," he said. "We are listening to all parties to understand their concerns and help them refine official landing zones based on a shared vision of success so we can deliver a fair and ambitious new goal," he added. "We need everyone to play their part so that we can build up unstoppable momentum where everyone is confident that their contribution is fairly matched by the contributions of others". Germany's foreign minister Annalena Baerbock said industrialised countries need to live up to their responsibilities. "Financial contributions from developed countries and multinational development banks will remain the basis of our efforts," she said, confirming that Germany has a €6bn climate goal for 2025. But she also said that "the world has changed" since the UN climate body the UNFCCC established a list of climate finance donors in 1992. The list has just 24 countries, plus the EU, as contributors. "In 1992, the two dozen countries that provided international climate finance made up 80pc of the world's economy. Now, that share is down to 50pc, and the share of all other countries has more than doubled," she said. She urged other countries in the G20, including China, "to join our effort". She pointed out that the donor base was broader for the loss and damage fund — to tackle the unavoidable and irreversible effects of climate change. Cop 28 host the UAE, which is not part of the 1992 list of donors, was the first contributor of the new fund created in Dubai last year. Babayev said that finance will not be the only important topic discussed at Cop 29 and that work must be done to get "the loss and damage fund up and running". Finalising the Article 6 negotiations will also be a key issue. "We cannot leave everything to market mechanisms," he said. By Caroline Varin Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
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