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Viewpoint: Bearish year ahead for NOx markets

  • Spanish Market: Electricity, Emissions
  • 30/12/24

The Cross-State Air Pollution Rule (CSAPR) NOx allowance markets will likely face a bearish year in 2025, as the incoming administration of president-elect Donald Trump creates uncertainty over the fate of the latest federal regulation to curb emissions.

The US Supreme Court halted implementation of the US Environmental Protection Agency's (EPA) "good neighbor" plan in June with a nationwide stay. This left an already stunted regulation to cut NOx emissions, a precursor to harmful ground-level ozone, obsolete for the foreseeable future.

EPA finalized a plan in March 2023 to help downwind states meet the 2015 national air quality standards by setting tighter ozone season NOx caps on power plants covered by CSPAR as well as new limits for industrial facilities in more than 20 upwind states.

But by the time the justices issued the stay, the number of covered states had already shrunk by more than half because of lower-court orders pausing implementation in 12 states.

Prices for seasonal NOx allowances have flatlined and the market has been illiquid over much of 2024 because of uncertainty over how numerous legal challenges against the good neighbor plan would play out. Argus has assessed Group 2 allowances at $775/short ton (st) and Group 3 allowances at a record low $1,250/st since January.

This could change, albeit at a slow pace, because EPA finalized an interim rule in November to comply with the nationwide stay. Power plants that had been covered by the good neighbor plan are now under less-stringent NOx budgets tied to older air quality standards, and the 10 states that had been participating in the Group 3 market prior to the stay are now reshuffled into Group 2 and a separate 12-state "expanded" Group 2 market.

All that remains is… uncertainty

In the new year, the market will wait to see how the Trump administration will deal with the good neighbor plan and the associated legal challenges in the US Court of Appeals for the DC Circuit and the US Supreme Court.

Because of the stay, there is no hurry for the new administration to address the legal woes, and it is unlikely the DC Circuit will soon rule on the legality of EPA's rejection of state ozone reduction plans.

The Trump EPA, following precedent of prior administrations, will likely ask the court to pause litigation until it decides whether to continue defending the plan, according to Jeff Holmstead, assistant administrator at the agency under former president George W Bush.

The agency will likely revoke the plan at some point and replace it with a rule that is more "modest" and would not significantly affect allowance prices, he said.

The EPA under Trump could ultimately decide that upwind states do not significantly contribute to interstate pollution, reversing a determination that has underpinned the good neighbor plan.That could lead to downwind states asking the agency to address specific sources that contribute to their air quality problems, said Carrie Jenks, executive director of Harvard Law School's Environmental and Energy Law Program.

The Supreme Court is also hearing a case to decide the proper court venue for Clean Air Act disputes, which involves the good neighbor plan.

The Trump administration likely will agree with various states and industry groups that say EPA's rejections of individual state plans are not a "nationally applicable" action and must be litigated in the regional circuit courts, but the Supreme Court is likely to continue the venue case, Jenks said. Oral arguments will likely be held early next year.

It is also unclear how Lee Zeldin, Trump's pick to lead EPA will affect the regulation. Zeldin is a moderate, given his history, and will likely "not want to impose significant new burdens on fossil fuel power plants", Holmstead said.

Trump's plans to downsize the federal bureaucracy could also affect future rulemakings, according to Jenks.

"Nobody really knows what's going to happen," she said.

As a result, market activity is likely to remain limited in the coming months as participants await legal and regulatory clarity.

In addition, markets are likely to be oversupplied now that power plants are under lighter NOx caps. Most states in the seasonal NOx markets were well below their limits for the 2024 ozone season, despite a 9.2pc increase in cumulative emissions in the expanded Group 2.

EPA will also allow some power plants to convert vintage 2021-23 Group 3 allowances to Group 2 or expanded Group 2 allowances, adding to supply.

With low demand and a potential oversupply, seasonal NOx allowances could see prices fall .


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29/01/25

DeepSeek undermines AI power demand forecasts

DeepSeek undermines AI power demand forecasts

New York, 29 January (Argus) — Unexpected efficiency achievements by Chinese artificial intelligence (AI) company DeepSeek have cast a shadow over a bullish narrative on booming US electricity demand in the coming decade to power data centers running AI software. Share prices for US independent power producers, natural gas producers and gas pipeline companies fell sharply at the beginning of the week as investors feared DeepSeek's achievement implied significantly less electricity might ultimately be needed to run and train AI models than has been expected. This greater efficiency "calls into question the significant electric demand projections for the US," as the investment case for independent power producers and most integrated utilities is "entirely dependent on data centers," US bank Jefferies said in a note to clients this week. DeepSeek's apparent ability to achieve comparable results to some major US AI companies using far less computing power — and thus far less electricity — may also be bad news for what is widely expected to be the main fuel source to generate incremental power for AI this decade: natural gas. EQT, one of the largest US gas producers by volume, has called growing power demand from planned data centers the "cornerstone" to its "natural gas bull case." Large US gas pipeline companies like Williams, operator of the Transcontinental pipeline, have also touted recent forecasts showing surging demand for gas-fired power, as greater gas generation would require greater pipeline capacity to move those incremental volumes from wellhead to generator. DeepSeek's achievement could even cast doubt on the investment case for nuclear power, which has been recast as something of a silver bullet for major technology companies looking to secure zero-emission electricity to enable their AI development efforts. While investors have generally assumed significant premiums for nuclear power, to the tune of more than $100/MWh, new demonstrated efficiencies might cause those assumptions to be questioned, Jefferies said. A loss in power demand for AI data centers may also undercut the investment case for next-generation small modular reactors (SMRs), into which tech companies like Google and Microsoft have poured substantial capital. Revising the revisions News of DeepSeek's efficiency achievements are a shock to prevailing expectations for surging US power demand in the coming decade, when those expectations have already been substantially revised over the past year, following decades of stagnant power demand. US grid operator PJM, which serves 65mn customers and is the largest US electric grid, on 24 January released a report showing significant upward revisions in its peak seasonal power demand projections. Peak summer power demand in PJM's territory in the mid-Atlantic was projected to surge to 210GW in 2035 and 229GW in 2045, substantially steeper than PJM's load forecast just one year earlier, which showed peak summer power demand in PJM rising to 177GW in 2034 and 191GW in 2039. Consultancy firm McKinsey in November forecast US data center power demand to reach 606TWh by 2030, up from 147TWh in 2023. Under this scenario, data centers at the end of the decade would comprise 11.7pc of total US power demand. If efficiency gains in AI reduce power demand as much as some investors fear, those big forecasts might require big revisions. But efficiency improvements can go two ways — they can reduce demand for fuel, or simply increase output. In the case of AI, more efficient operations could be exploited to accelerate the development of more powerful AI models — using the same amount of power that was previous expected, but to far greater effect. That latter explanation is why, "despite uncertainties," FactSet head of power markets Matthew Hoza tells Argus he remains "bullish" on power demand growth in the coming years. "With AI's increasing integration into company tech stacks and its growing presence in daily life through AI agents, we anticipate continued growth in AI adoption and the resulting power needs," Hoza said. By Julian Hast Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

ECA's green export finance bypasses developing nations


29/01/25
29/01/25

ECA's green export finance bypasses developing nations

Berlin, 29 January (Argus) — The "greening" of export credit agency's (ECA) finance which occurred in the past decade has largely bypassed developing countries, with investments mainly flowing to higher-income countries, according to a study on ECA transactions. The study, carried out by researchers from the business schools HEC Lausanne, ETH Zurich and HEC Paris, shows that ECA energy finance going to lower-income countries dropped to below 30pc in 2022-23 from 47pc in 2013-15. ECAs, including export-import banks, are state-backed agencies that help national exporters finance deals abroad by providing guarantees or loans. The share of ECA renewables commitments — mostly offshore wind and, increasingly, green hydrogen — rose to around 40pc in 2022–23, from under 10pc in 2013. The complete phase-out of fossil fuel financing appears "distant", the researchers noted. While ECAs handle financing volumes "on a par with multilateral development banks such as the World Bank", the scope and direction of their energy investments have largely remained "opaque", the researchers said. The study is based on an analysis of almost 1,000 transactions between 2013-23 which financed energy-related infrastructure and were supported by ECAs. For some key ECA countries such as China or Canada, data is only partially available. The study also reveals "notable" disparities between countries. Most members of the Export Finance for Future coalition (E3F), a group of European countries committed to aligning their export finance with the Paris climate agreement, have introduced stricter fossil fuel exclusions and are boosting their renewable portfolios. At the same time, major players like South Korea, Japan, and China have maintained significant levels of oil and gas lending. OECD countries should introduce "more rigorous climate policies" and renew international cooperation, the researchers said, particularly with non-OECD countries such as China. The OECD — where ECA terms and conditions are negotiated — could relaunch the International Working Group on ECAs, they said, to help ensure that countries phasing out support for fossil fuels do not see their market shares grabbed by others. Better renewable investment support via ECAs could help scale up the new collective quantified goal (NCQG) on climate finance, set at a minimum of $300bn annually by 2035 at the last UN Cop 29 climate summit in November, the researchers said. And ECA mandates could also be broadened to accommodate the needs of lower-income regions. "It is high time for ECAs to complete the shift to renewable energy, and through carefully designed policies and international cooperation, become true catalysts for a rapid and just energy transition," lead author Philipp Censkowsky from HEC Lausanne said. By Chloe Jardine Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

Brazil biofuels venture to add complex in Alagoas


28/01/25
28/01/25

Brazil biofuels venture to add complex in Alagoas

Sao Paulo, 28 January (Argus) — Brazilian advanced biofuels firm GranBio, biofuels producer Impacto Bioenergia and two sugarcane plant operators will build a biofuels complex in northeastern Alagoas state, the companies said on Monday. The biorefinery project, named Exygen I, will cost an estimated R1.5bn ($253mn) and produce carbon neutral ethanol, biomethane and biofertilizers. It will have production capacity of 160mn l/yr (2,760 b/d) by 2026 and use sugarcane byproducts as feedstock, according to GranBio. Exygen I's estimated biomethane production capacity will be 50mn m³/yr. The complex will produce the renewable gas from vinasse, a by-product of sugarcane processing. Future investments would include increasing Exygen I's storage capacity and biogas distribution. But the initial storage and biogas distribution capacities were not disclosed. The project's next step includes producing biogenic CO2 — made from organic matter decomposition — biofertilizers and e-methanol, used in marine fuels. The project is a joint effort between GranBio, Impacto Bioenergia, Alagoas-based producing unit Caete and sugar and ethanol firm Central Açucareira Santo Antonio. Brazil's fuels of the future law , approved in October, increased incentives for the country's biofuels market. By Maria Frazatto Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

Capacity markets need to reduce emissions: Aurora


28/01/25
28/01/25

Capacity markets need to reduce emissions: Aurora

London, 28 January (Argus) — European capacity markets focus too much attention on fossil fuel-fired plants and not enough on renewable sources of security of supply, according to a report issued by research firm Aurora that was commissioned by campaign group Beyond Fossil Fuels. Capacity markets in the six European countries that have them — the UK, France, Italy, Poland, Ireland and Belgium — have made payments totalling €89.6bn since a mechanism of this kind was first established in the UK in 2015, the report says. The mechanisms are intended to allow firm sources of generation to remain financially viable, even as increasing intermittent renewable generation reduces the number of hours that these types of plants can run profitably. Of this, nearly half went to support gas-fired capacity and 8pc to coal-fired plants, although there is some uncertainty over precise amounts because of data unavailability. Nuclear plants, mostly in France, received 12pc of the support, while storage — located mostly in the UK and Poland — took 13pc. Renewables, interconnectors and demand-side response took only 7pc, 5pc and 2pc, respectively. And 19GW of newbuild gas-fired plants have been funded through the schemes, with another 11GW of newbuild gas-fired plants having been awarded a contract for delivery in the next three years. Some of the plants will continue receiving funding until the 2040s, Aurora said, putting at risk European states' plans to move towards net zero greenhouse gas emissions. Payments for some assets in five of the countries studied continue until 2037-43, although France's unique decentralised system does not provide incentives beyond the front year. Payments to operators of battery energy storage systems (Bess) make up only a small part of the total, even though these units can provide zero-emissions short-term energy storage. Regulators should set up schemes to prioritise zero-emissions forms of security of supply, the report says. And alternative schemes, such as capacity reserves, in which fossil-fired capacity is kept back to resolve supply-demand imbalances but not allowed to act in wholesale markets, can ensure these plants do not lead to emissions increases. At the same time, a lack of viable long-term storage options could mean fossil fuel-fired technologies are needed for longer periods. Bess systems too can suffer from an inability to charge during long periods of low renewables output, which prompted Polish grid operator PSE to increase the technology's de-rating in an auction held last year. Other countries are considering setting up capacity markets, with discussions under way in Spain, Germany and Greece. Spain's planned market, which is under consultation , will allow payments for thermal generators only for a year in advance and in particular circumstances, with only renewables, storage and demand response being eligible for long-term support. By Rhys Talbot Capacity market spending by technology Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

Republican floats repeal of 45Z clean fuel credit


27/01/25
27/01/25

Republican floats repeal of 45Z clean fuel credit

New York, 27 January (Argus) — A Republican lawmaker has quietly introduced a bill to repeal a key subsidy for low-carbon fuels, complicating a debate among lawmakers on what to do with clean energy incentives provided by the Inflation Reduction Act. The bill, HR 549, introduced this month by US representative Beth Van Duyne (R-Texas) would repeal the 2022 climate law's "45Z" incentive for clean fuels, which offers increasingly generous subsidies to fuels as they produce fewer greenhouse gas emissions. While the credit is currently in effect, the legislation as written would apply retroactively, striking the credit from the tax code after 2024. The proposal comes as Republicans prepare to pass major legislation this year through the Senate's reconciliation process, which bypasses the 100-member chamber's 60-vote requirement to advance most bills. Intent on extending tax breaks passed during President Donald Trump's first term but wary of adding to budget deficits, lawmakers are searching for ways to cut government spending. While changes to at least some Inflation Reduction Act programs are expected, biofuels policy is seen as a less likely target for Republicans than other climate policies. And even members supportive of scrapping clean energy subsidies might be wary of repealing incentives retroactively. Still, the new bill suggests that a full repeal of 45Z could at least be part of legislative discussions this year. The bill was referred on 16 January to the House Ways and Means Committee, of which Van Duyne is a member. Other Republicans on the Ways and Means Committee have expressed openness to updating but not necessarily eliminating the credit, with six members opening a request for information last year on options such as limiting foreign feedstocks or encouraging more "climate-smart" farm practices. Industry groups generally supportive of 45Z might even welcome some legislative changes, particularly those frustrated by incomplete guidance on qualifying for the credit issued in the waning days of former president Joe Biden's term. More information on lawmakers' plans could come soon, with House Republicans on Monday attending a policy retreat with Trump in Florida. Whatever changes are proposed, Republicans' slim majorities leaves them with little room for dissent and could give farm-state lawmakers leverage to ensure some type of biofuel tax credit survives legislative negotiations. By Cole Martin Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

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