‘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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Scotland abandons 2030 climate target to focus on 2045
Scotland abandons 2030 climate target to focus on 2045
Edinburgh, 18 April (Argus) — The Scottish government is abandoning its 2030 target to reduce greenhouse gas (GHG) emissions after the UK's Climate Change Committee (CCC) said last month Scotland would not be able to meet it, but reiterated "unwavering commitment" to its 2045 net zero goal. Scotland had an ambitious interim target to reduce GHG emissions by 75pc by 2030 from a 1990 baseline and its legally binding 2045 net zero goal date is ahead of the rest of the UK. The CCC said in March that the nation was unlikely to meet its 2030 climate goals as "continued delays" in plans and policies mean the required actions to hit targets are now "beyond what is credible". And today, Scotland's cabinet secretary for net zero Mairi McAllan said that the government "accepts the CCC's recent re-articulations" that the "2030 target is out of reach". "We must now act to chart a course to 2045 at a pace and scale that is feasible, fair and just." She said that the government will bring forward "expediting legislation" to remove the 2030 target, calling it "a minor legislative change". McAllan said climate actions are backtracking at the UK level and blamed "severe budget restrictions" by the UK government and the "constrains of devolution". Scotland is a member nation of the UK, and the Scottish parliament has some devolved powers. But energy, for example, remains a reserved matter in the UK, and decisions — including licensing, regulation and policy — are taken by the UK parliament. She said that Scotland was trying to achieve societal and economic transformation with "one hand tied behind our back". Scotland's first minister Humza Yousaf said there was no intention to "roll back" on the target to achieve net zero emissions by 2045, saying that Scotland has made faster progress than any other nation in the UK during 2019-21, but that 2030 was a "stretched" target. McAllan said annual reporting on progress will be kept but by introducing a target approach based on "five-yearly carbon budgets" — a cap on the amount of GHG emitted over a five-year period — in a similar way to the rest of the UK. Scotland missed its annual emissions-reduction target in 2021, for the eighth time in the last 12 years. The CCC's interim chair Piers Forster said today that the removal of the 2030 target was "deeply disappointing". "We are reassured that the net zero target remains in place but interim targets and plans to deliver against them are what makes any net zero commitment credible," he said. McAllan announced a series of measures that the government wants to introduce, including reducing methane emissions in farming, a Scotland-wide integrated transport ticketing system, and the quadrupling of electric car charging points. But it is unclear what will happen to Scotland's delayed climate strategy, which was due at the end of 2023. By Caroline Varin Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
NSTA fines Neo Energy for North Sea methane venting
NSTA fines Neo Energy for North Sea methane venting
London, 18 April (Argus) — UK offshore regulator the North Sea Transition Authority (NSTA) has fined UK upstream firm Neo Energy £100,000 for breaching its methane venting permit at North Sea fields. The company emitted 1,200t of methane in excess of its permit from the Donan, Lochranza and Balloch fields in the first nine months of 2022. Neo had permission to vent 378t of methane from installations at these fields in that year, but incorrectly assigned volumes vented through unlit flares to its flaring consent, the NSTA found. Neo showed a "lack of oversight" by failing to detect the licence breach for seven months, NSTA said. The company reached its annual limit by 21 March 2022, but continued venting without authorisation until October 2022. The company said it did not update its flare and vent allocation process to reflect NSTA guidance updated in 2021, and as such was still assigning its flaring and venting according to previous guidance. Neo becomes the fourth company to be fined by the NSTA over breaches relating to flaring and venting consents. The regulator in 2022 sanctioned Equinor and EnQuest and last year fined Spanish utility Repsol for consent breaches. The four companies have been fined a total of £475,000 for the breaches. And the regulator in February had four more investigations under way for breaches of vent consents. Neo Energy's fine is equivalent to £2.98/t of CO2e emitted, assuming a global warming potential of methane that is 28 times that of CO2 on a 100-year time scale, compared with a UK emissions trading system price of £34.40/t of CO2e on 17 April. The UK offshore industry targets a 50pc reduction in production emissions of greenhouse gases by 2030, from a 2018 baseline. And it intends to end all routine venting and flaring by that year. The regulator last year warned that "further, sustained action" would be needed to reach the 2030 emissions reduction goal. Methane emissions from offshore gas fell in recent years, to 1mn t in 2022 from 1.6mn t in 2018, according to NSTA data. Roughly half of methane emissions in the sector in recent years has been produced by venting, while flaring makes up about a quarter of the emissions. The UK government is a member of the Global Methane Pledge group of countries that aims to reduce methane emissions by 30pc by 2030 from a 2020 baseline. By Rhys Talbot Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Australia’s Queensland legislates emissions targets
Australia’s Queensland legislates emissions targets
Sydney, 18 April (Argus) — Australia's Queensland state today approved two separate laws setting renewable energy and emissions reduction targets over the next decade, as it transitions away from a coal-fired dependent power generation system. Queensland set net greenhouse gas (GHG) emissions reduction targets of 30pc below 2005 levels by 2030, 75pc by 2035 and zero by 2050 under the Clean Economy Jobs Act, while theEnergy (Renewable Transformation and Jobs) Act sets renewable energy targets of 50pc by 2030, 70pc by 2032 and 80pc by 2035. The state is on track to surpass the 2030 emissions target, latest data show, as it achieved a 29pc reduction in 2021. Even though the share of renewables in the power mix last year was the lowest across Australia at 26.9pc, it has been increasing consistently since 2015 when it was 4.5pc, according to data from the National Electricity Market's OpenNem website. Coal-fired generation has been steadily falling, down to 42.9TWh or a 65.7pc share in 2023 from 52.9TWh or 83pc in 2018. Most of Queensland's coal-fired plants belong to state-owned utilities, which the previous Labor party-led government of Annastacia Palaszczuk indicated would stop burning coal by 2035 . The new Labor party premier Steven Miles disclosed the 75pc emissions reduction target by 2035 in his first speech as leader last December. The Energy Act locks in public ownership of electricity assets, ensuring that at least 54pc of power generation assets above 30MW remain under state control, as well as 100pc of all transmission and distribution assets and 100pc of so-called "deep storage" assets — pumped hydro plants with at least 1.5GW of capacity. The government will need to prepare and publish a public ownership strategy for the July 2025-June 2030 and July 2030-June 2035 periods. A fund totalling A$150mn ($97mn) will also be set up to ensure workers at existing state-owned coal-fired power plants and associated coal mines have access to new jobs and training or financial assistance during the transition. The Clean Economy Jobs Act sees the government receiving advice from an expert panel on the measures needed to reduce emissions. The government will need to develop and publish sector plans by the end of 2025 with annual progress reports to Queensland's parliament. By Juan Weik Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
EU ETS in pricing ‘no man’s land’
EU ETS in pricing ‘no man’s land’
Florence, 17 April (Argus) — The EU emissions trading system (ETS) is sitting in a period between traditional price signals from the power sector and expected future industrial sources of price direction, delegates at a conference in Florence, Italy, heard today. The EU ETS is "right in the middle" of the transition phase from a power-centric to industrial-driven market, head of carbon markets at Spanish bank BBVA, Ingo Ramming, told the event, pointing to the fall in hedging of carbon allowances by the power sector as a result of renewable capacity buildout and reduced power demand in the current economic slowdown. Improvements in the economy could see more forward hedging by industrials, Ramming said. Aviation and shipping — the other sectors covered by the EU ETS in which decarbonisation has so far been limited — could be further ahead on this if they had synchronised their carbon hedging with their fuel hedging, Ramming added. But until industry steps in to fill the current gap, the EU ETS is "in no man's land", head of research at fund manager Andurand Capital, Mark Lewis, said. "Carbon this year is a price taker, not a price maker," head of market research and analysis at environmental commodities trading firm Vertis, Stefan Feuchtinger, said. "Carbon doesn't matter to the carbon price." But while Lewis sees this gap leaving space in the market open to the financial sector, attributing recent price direction and volatility to speculators, Feuchtinger believes there is still "significant" power hedging in the EU ETS, even if at much lower levels than in the past. Feuchtinger expects the carbon market to continue to be priced by the utility sector until 2026-27, when there is no longer sufficient coal in the market to justify this and pricing shifts to the industrial side. Where the carbon price will sit once it is set by industrials is "less straightforward", Feuchtinger said. Carbon capture and storage is key to this, he said, but depends on where it is based and which technology is used, requiring carbon prices in a range of €90-150/t of CO2 equivalent. And while carbon prices sitting well below these levels mean less action is currently being taken to develop solutions for industrial decarbonisation, this time delay will lead to larger price spikes in the future, he said. By Victoria Hatherick Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
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