CO2 prices soar as Germany hints at permit cancellation
Front-year delivery carbon allowances under the EU emissions trading system (ETS) changed hands at more than €28/t of CO2 equivalent (CO2e) for the first time in more than 11 years last week, after the German government indicated that it would be willing to cancel permits as part of its plans to phase out coal-fired power plants.
The EU ETS December 2019 contract ended trading last week at €28.78/t CO2e, having risen by a combined €2.40/t CO2e, or more than 9pc, over the course of the week — the product's largest week-on-week rise since the week beginning 1 April (see chart). This closing value was the highest for any front-year delivery EU ETS product since 1 July 2008.
The vast majority of the week's gains — €2.21/t CO2e — came in the final three trading sessions, after German environment minister Svenja Schulze confirmed on 10 July that her department would back a recommendation to cancel a proportional share of EU ETS allowances to offset the probable reduction in demand for carbon permits that would be caused by the country's closure of coal and lignite-fired units.
The December 2019 contract rose by €1.61/t CO2e on the day of Schulze's announcement — the product's largest day-on-day increase since 27 February — although part of this rise was driven by the absence of any fresh supply entering the market, because of the continuing Brexit-related suspension of auctions of UK-issued allowances.
EU ETS market prices have also historically been particularly susceptible to upward moves during July trading, as market participants expect thinner supplies in August — when allowance auction volumes are halved amid expectations of weaker holiday demand. The carbon market's front-year product has gained month-on-month value during July in all but one of the past six years in anticipation of these reduced supplies.
EU ETS price gains last week also drew support from weather forecasts pointing to the likelihood of another warm spell across large parts of Europe towards the end of July, which could boost the requirement for thermal forms of power generation to meet stronger demand for cooling. Highs of up to 30˚C are expected in Berlin by 20 July, while daytime levels in Paris could exceed 31˚C.
But an increase in thermal power output is unlikely to boost spot demand for carbon allowances as much as it might have done in previous years, with German coal-fired plants remaining firmly behind gas-fired units in the country's expected power sector merit order.
German gas-fired plants are on track to produce more power than coal-fired units for a second consecutive month in July, and for the third month this year, while wind farms remain on track to displace lignite units as the country's largest source of electricity over an entire year for the first time.
Auction demand, traded volumes
Last week's price spike resulted in a significant increase in primary market auction demand and secondary market traded volumes. The three auctions of EU-wide allowances drew bids for an average of roughly 7.4mn permits each, compared with an average of just 5.5mn for all of the sales in 2019 so far.
The auction on 11 July attracted particularly strong demand, with bids submitted for 8.7mn permits, as participants rushed to secure available allowances in the wake of Schulze's announcement before further price rises. This volume bid for was the most for any EU ETS primary market auction this year, and was more than three times the quantity of allowances made available for sale.
Stronger demand for carbon allowances was also reflected in the traded volumes of permits last week. An average of 18.8mn December 2019 delivery permits changed hands at the Intercontinental Exchange during each session last week, compared with a 17.6mn/d average for the whole of the year so far (see chart). More than 30mn front year delivery allowances traded on the exchange on 10 July alone, which was the most for any day since 10 April.
Outlook
A full five-day EU ETS primary market auction schedule returns this week, as a sale of Polish-issued permits will be held on 17 July, while an auction for 892,000 EU-wide aviation allowances is also due to take place that day.
This supply boost could limit the potential for further gains, although the carbon market is likely to find increased support and buying interest towards the end of July as August's supply crunch looms.
Related news posts
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.
US-led carbon initiative misses launch date
US-led carbon initiative misses launch date
Houston, 23 April (Argus) — The Energy Transition Accelerator (ETA), a global initiative to use voluntary carbon market revenue to speed the decarbonization of developing countries' power sectors, has missed its planned Earth Day launch but continues to prepare for doing business. At the Cop 28 climate conference in Dubai last year, the initiative's leaders said they hoped to formally launch the program on 22 April 2024 . That didn't happen, but the program's leaders last week announced that the US climate think tank Center for Climate and Energy Solutions will serve as the ETA's new secretariat and that former US special presidential envoy for climate John Kerry will serve as the honorary chair of an eight-member senior consultative group that will advise the ETA's design and operations. The ETA plans to spend 2024 "building" on a framework for crediting projects they released last year. ETA leaders said the initiative could ultimately generate tens of billions of dollars in finances through 2035. The ETA also said the Dominican Republic had formed a government working group to "guide its engagement" as a potential pilot country for investments and that the Philippines would formally participate as an "observer country" rather than as a direct participant immediately. The ETA is still engaging Chile and Nigeria as potential pilot countries too, the initiative told Argus . The ETA is being developed by the US State Department, the Rockefeller Foundation, and the Bezos Earth Fund and would be funded with money from the voluntary carbon market. The initiative's ultimate goal is to allow corporate and government offset buyers to help developing countries decarbonize their power sectors through large projects that accelerate the retirement of coal-fired power plants and build new renewable generation. As of now, the ETA's timeline for future changes and negotiations with countries and companies is unclear. The program's goals are ambitious, especially at a time when scrutiny of some voluntary carbon market projects from environmentalists has weighed on corporate offset demand. By Mia Westley Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Brazil RNG supply still seeks demand
Brazil RNG supply still seeks demand
Sao Paulo, 22 April (Argus) — The mismatch between growing Brazil biomethane supply and consumers willing to pay its higher prices still looms over projects expected to go on line in the next few months. There are three projects pending final approval from hydrocarbons regulator ANP to begin operating: Adecoagro's 14,400 m³/d plant in Mato Grosso do Sul, H2A Soluções Ambientais's approximately 4,300 m³/d plant in Goias and Raizen-Geo Biogas' 130,400 m³/d plant in São Paulo. The regulator has no timetable for final approvals. Another 10 biomethane plants, adding up to more than 502,400 m³/d, are scheduled to finish construction this year. Still, most of the upcoming projects lack customers for the additional supply, according to market sources. Finding buyers for this more-expensive natural gas substitute can be difficult, as relatively few companies have specific budgets for decarbonization. Brazil has six plants with ANP authorization to produce and sell about 417,100 m³/d of biomethane. Another 139,000 m³/d of capacity is scheduled to become operational in 2025, bringing total certified biomethane supply to at least 1.2mn m³/d in the next two years. First movers in the biomethane consumer market have been paying a premium to the parity price against natural gas. This premium represents the value of the lower carbon levels in biomethane, which does not always carry tradable certification. Brazil's lack of a market for biomethane guarantees of origin, such as biomethane renewable energy certificates (Gas-RECs), is also inhibited by doubts about the main emissions reporting platform, the GHG Protocol. In 2015, the GHG Protocol allowed the use of biomethane certificates to offset emissions, only to remove them from their documents in 2020, citing the need for more studies. Countries that created regulatory mechanisms before the GHG Protocol changed course have a competitive advantage over Brazil, according to Fernando Giachini Lopes, director of Instituto Totum, which certifies biomethane renewable energy certificates (Gas-RECs) and I-RECs in Brazil. By Rebecca Gompertz Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
TotalEnergies takes FID for Oman's Marsa LNG
TotalEnergies takes FID for Oman's Marsa LNG
Dubai, 22 April (Argus) — TotalEnergies has taken a final investment decision (FID) for the integrated Marsa LNG bunkering project it is carrying out in Oman with state oil company OQ. The project involves the production of 150mn ft³/d (1.55bn m³/yr) of gas from Oman's onshore block 10, the liquefaction of that gas at a new 1mn t/yr capacity plant to be built at the port of Sohar on Oman's north coast, and the construction of a 300MW solar generation facility that will power the plant. The ambition of the project is to serve as the first LNG bunkering hub in the Mideast Gulf region, showcasing "an available and competitive alternative marine fuel" to reduce emissions coming from the shipping industry. TotalEnergies said today that it expects to begin producing LNG by the first quarter of 2028. That LNG is "primarily intended to serve the marine fuel market in the Gulf", the company said, but all LNG quantities not sold as bunker fuel will be off-taken by TotalEnergies and OQ. "We are proud to open a new chapter in our history in the sultanate of Oman with the launch of the Marsa LNG project, together with OQ," TotalEnergies chief executive Patrick Pouyanne said. TotalEnergies holds a majority 80pc stake in the joint venture, with OQ holding the remaining 20pc. "We are especially pleased to deploy the two pillars of our transition strategy, LNG and renewables, and thus support the sultanate on a new scale in the sustainable development of its energy resources," Pouyanne said. TotalEnergies, Shell and OQ formalised an agreement to develop the gas resources in Oman's block 10 in late 2021 . The consortium began producing gas from the Mabrouk North East field in block 10 in January 2023. At the time, the companies said they expected to reach plateau production of 500mn ft³/d by the middle of 2024. But TotalEnergies today said the consortium had already reached plateau this month. As part of the original agreement, Marsa LNG was due to deliver production from the block to the government for 18 years, or until the end of 2039. But the decision by TotalEnergies and OQ to take FID has triggered an extension of Marsa LNG's rights to block 10 until 2050. The planned 300MW photovoltaic solar plant should cover 100pc of the LNG plant's annual power consumption, which will help "significantly" reduce greenhouse gases. "By paving the way for making the next generation of very low-emission LNG plants, Marsa LNG is contributing to making gas a long-term transition energy," Pouyanne said. By Nader Itayim Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Business intelligence reports
Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.
Learn more