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‘More stable’ EU ETS prices under lower MSR rate

  • Market: Emissions
  • 30/04/21

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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20/09/24

CFTC finalizes carbon offset guidance

CFTC finalizes carbon offset guidance

Houston, 20 September (Argus) — The US Commodity Futures Trading Commission (CFTC) finalized guidance Friday advising futures exchanges to examine the integrity of voluntary carbon credits tied to derivatives contracts, including whether those credits represent tangible emissions cuts. CFTC commissioners finalized the guidance in a 4-1 vote, another step in a recent push to standardize and promote best practices for the voluntary carbon market and minimize fraud. While the guidance does not serve as binding rules that futures exchanges are obligated to follow, the latest guidance represents the CFTC's "views regarding factors that may be relevant" as it assesses compliance with federal law. Carbon offsets are typically sold over the counter, though some exchanges allow for the trading of carbon offset futures. The CFTC guidance directs futures exchanges to ensure that voluntary carbon offset credits tied to contracts on their platforms adhere to best practices, such as transparency over how greenhouse gas (GHG) emissions are calculated, accounting for risks over the cancellation or recalling of credits, and ensuring third-party verification and validation. Futures exchanges are also instructed to note whether contracts for carbon offsets provide "additionality" — that is, whether the credits represent further emissions reductions that would not have occurred regardless of the offsets. Any changes to the offset registry or to the projects generating those offset credits should be reflected in the associated contract's terms and conditions, the guidance says. CFTC first began planning its guidance for voluntary carbon credits in July 2023, with the proposed guidance released later that December . Some futures exchanges had expressed discontent with the proposal in February, saying that it placed too much of a burden on them to verify the integrity of carbon offset credits. The final guidance was initially planned to have been released in July. CFTC commissioner Summer Mersinger, a Republican, wrote the lone dissent, arguing that the agency is issuing rules for commodities "that have very little open interest" and that the guidance is advancing an "ideology" rather than "simply offering guidance." Public Citizen, a progressive nonprofit, gave the guidance mixed reviews, saying it would help prevent fraud but that the underlying market for voluntary carbon offsets "should not be greenlighted for trade in the first place." CFTC chair Rostin Behnam affirmed his support for the guidance, calling it a "critical step" in the growth of voluntary carbon markets. By Ida Balakrishna Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Climate finance from MDBs at record $125bn in 2023


20/09/24
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20/09/24

Climate finance from MDBs at record $125bn in 2023

London, 20 September (Argus) — Ten multilateral development banks (MDBs) provided a record $125bn in climate finance in 2023, up from just under $100bn in 2022, according to a report led by the European Investment Bank (EIB). The report combines data from the EIB, the African Development Bank, the Asian Development Bank, the Asian Infrastructure Investment Bank, the Council of Europe Development Bank, the European Bank for Reconstruction and Development, the Inter-American Development Bank, the Islamic Development Bank, the New Development Bank and the World Bank Group. The MDBs provided $74.7bn in climate finance for low- and middle-income economies in 2023, up by 23pc on the year. Half of this was from the World Bank. Of the total, a third was for climate adaptation — adjusting to the effects of climate change where possible — with the remainder for mitigation, or cutting emissions. The amount of private finance mobilised for this group was $28.5bn in 2023. MDBs allocated $50.3bn to high-income economies last year, up by nearly a third from $38.8bn in 2022. The EIB provided most of the total, at $42.1bn. The vast majority — 94pc — went to mitigation, with the remainder for adaptation. Private finance mobilised for high-income countries was significantly higher, at $72.7bn, reflecting the challenges faced by developing economies to pull in finance from the private sector. Climate finance will take centre stage at the UN Cop 29 summit in Baku, Azerbaijan, in November. Countries must decide on the next stage of a climate finance goal , after developed countries agreed to deliver $100bn/yr in climate finance to developing nations over 2020-25. MDBs are often called on by governments and campaign groups to do more to tackle climate change. The same 10 MDBs said earlier this year they will implement "new innovative climate finance approaches", including guarantees, sustainability-linked bonds, disaster clauses and mechanisms to access emergency finance. By Georgia Gratton Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Singapore’s GenZero, Rwanda tie up on carbon credits


20/09/24
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20/09/24

Singapore’s GenZero, Rwanda tie up on carbon credits

Singapore, 20 September (Argus) — Singaporean investment platform GenZero has signed an agreement with Rwanda and carbon registry Gold Standard to develop Article 6-compliant carbon credit projects in Rwanda. GenZero, a subsidiary of state-owned investment firm Temasek, signed the agreement with Rwanda Green Fund, the country's financing vehicle for attracting and co-ordinating climate finance through investments, and the Rwanda Environment Management Authority, the country's national authority under Article 6, GenZero said on 19 September. The projects under the agreement will cover both carbon reduction and removal activities whitelisted by the Rwanda government for Article 6. Rwanda and GenZero will assess the potential for the Article 6 projects, which will "go through a robust due diligence and screening process," said GenZero, before undertaking certification by Gold Standard. Eligible projects must utilise Gold Standard's methodologies and comply with its requirements to achieve certification. These projects should first meet Rwanda's national carbon market framework, and will subsequently be able to issue credits that come with corresponding adjustments to ensure no double counting. GenZero will also assess proposals for commercial viability, based on the project's mitigation potential, project maturity and financial returns, it said. This "partnership between a government, a standard-setting body and an investor reflects the shared commitment of the partners to catalyse international investment in high-integrity Article 6 projects in countries such as Rwanda, while generating sustainable benefits for the local economy, environment and communities," said GenZero. Singapore and Rwanda signed an agreement in December last year to collaborate on creating carbon credit frameworks and Article 6-compliant credits. Singapore has also signed multiple agreements with other countries such as the Philippines , Ghana and Papua New Guinea , signalling the country's commitment to establishing cross-border trades of carbon credits as part of its decarbonisation efforts. By Prethika Nair Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Indonesia to require SAF for flights from 2027


19/09/24
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19/09/24

Indonesia to require SAF for flights from 2027

Singapore, 19 September (Argus) — Indonesia will require flights to use sustainable aviation fuel (SAF) in their fuel mix from 2027, the Co-ordinating Ministry for Maritime Affairs and Investment announced on 18 September during the Bali International Air Show. International flights departing Indonesia will be required to use 1pc SAF in their fuel mix, or an estimated 60,000 kilolitres (kl), in 2027. This will rise to 2.5pc by 2030, 12.5pc by 2040, 30pc by 2050, and 50pc, or a projected 7.88mn kl, by 2060. The country's SAF roadmap and policy action plan was also announced on 18 September, and will be implemented as a Presidential Instruction by September. Used cooking oil (UCO) and palm fatty acid distillate (Pfad) were cited as prioritised feedstocks, although other potential feedstocks like palm oil-based feedstocks, coconut, and seaweed will be explored as well. Crude palm oil (CPO) was identified as the alternative SAF feedstock that is most widely available within Indonesia, with a current excess supply of 16.5mn t after energy and food use, which can be converted into 13.3mn t of SAF. But SAF produced from CPO is estimated to have life cycle emissions of 77-99 gCO2/MJ, above the International Civil Aviation Organisation (ICAO), US and EU standards, limiting its global marketability. Indonesia aims to establish a taskforce to further engage ICAO on this, over a maximum of two years. SAF Action Plan A 2025-29 Action Plan was also announced, with three main policy pillars of demand, supply and enablers which were mentioned earlier in the year . Notable points under the supply pillar includes securing enough domestic feedstocks for SAF production via the hydroprocessed esters and fatty acids (HEFA) pathway – which included a proposed domestic market obligation (DMO) for Pfad, and export quota and/or tariff for UCO. Emission-based incentives for SAF and exploring SAF production through other pathways, like alcohol-to-jet, were also mentioned. The country's Ministry of Investment said that the country has potential to produce up to 1.72mn kl of SAF, 8.03mn kl of biodiesel, and 1.76mn kl of bioethanol, based on the Strategic Investment Downstream Roadmap over 2023-2040. Under the enablers pillar, there are plans to appoint a national accreditation body for SAF certification and a domestic SAF certification ecosystem. Under the demand pillar, the country aims to implement pilot SAF offtake agreements for international flights from Ngurah Rai International Airport, and to increase the SAF mandate at Ngurah Rai, the Soekarno-Hatta International Airport, and other major airports. It also plans for an SAF usage mandate for corporate and government travellers. South Korea previously announced a 1pc SAF mandate in August for international flights, while Japan proposed stricter rules for domestic SAF producers to cut greenhouse gas emissions from jet fuel use in June, with the discussions to be finalised later this year. By Sarah Giam Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Wash. regulators plan for cap-and-trade vote


18/09/24
News
18/09/24

Wash. regulators plan for cap-and-trade vote

Monterey, 18 September (Argus) — Washington regulators are making a "contingency" plan in the event of a successful repeal of the state's emissions cap-and-trade program. Initiative 2117, which looks to repeal the state's cap-and-trade program and prevent any similar program from taking its place, will be on state ballots for the 5 November election. "We are doing contingency planning in case the ballot measure passes and will update our covered entities when we do have information — and I know this initiative is creating a lot of uncertainty," said Stephanie Potts, senior planner with the state Department of Ecology today at the Argus North American Biofuels, LCFS & Carbon Markets Summit in Monterey, California. The agency also remains focused on continuing to implement the program, "assuming it continues," she said. Washington's "cap-and-invest" program requires large industrial facilities, fuel suppliers, and power plants to reduce their greenhouse gas emissions by 45pc by 2030 and by 95pc by 2050, from 1990 levels. The department is in an ongoing rulemaking process to expand and amend its carbon offset protocols, and also continues work to gather input for linkage with the Western Climate Initiative, a linked carbon market between California and Quebec. Potts said Washington expects to have a linkage agreement in place by the end of next year. The uncertainty introduced by the ballot initiative over the fledgling market's future has tempered carbon credit prices and activity this year. Argus assessed Washington carbon allowances (WCAs) for December delivery at $30.25/metric tonne on 4 March, their lowest price since the program's inception in 2023. The drop in prices at that time coincided with a statement by Ecology outlining how a successful repeal would end the agency's authority over the program. Earlier this year, the state Office of Financial Management (OFM) released a fiscal impact statement on a successful repeal that assumed an effective repeal date would be 5 December. By Denise Cathey and Jessica Dell Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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