Archive for eu ets

EU 2008 Carbon Dioxide Emissions Exceed Permits by 25 Percent

Posted in Carbon markets with tags , , , , , on April 1, 2009 by Dan

The EC has published verified emissions data.

Bloomberg:

Power plants and factories in the European Union’s emissions trading program produced 25 percent more carbon dioxide than the amount of permits they received, according to Bloomberg calculations based on European Commission data.

The data is 91 percent complete, Stavros Dimas, the environment commissioner, said today in Brussels. The comparison between verified emissions and the allowances total is a like for like comparison, using only figures for installations that data is available for.

Cap and trade in the context of shrinking production

Posted in Climate policy with tags , , , , , , , , , on December 28, 2008 by Dan

Questions are being asked of the two working installation-level cap and trade schemes in light of economic recession. The EU ETS – the world’s largest carbon market – is trading at about 16 Euros per tonne and is volatile because no-one is quite sure of the impact of shrinking production. Analysts believe that all reductions could now be met through purchase of CERs. Essentially this means that industry within the EU ETS has lowered its output and can comply with the cap by offsetting rather than making additional internal reductions.

The other scheme, RGGI, a scheme covering power plants in north-east US, held its second pre-compliance auction on 18 December and sold 31.5m allowances at a price of $3.38 per short ton (up 31c from the first auction, which is surprising given the commentary that follows). An article on BusinessGreen says:

… the auction came amid fears that the economic downturn meant the US scheme could repeat the mistakes evident in the first phase of the EU’s emissions trading scheme by setting the cap too high – a scenario that led to a glut of available emission permits and a collapse in the price of carbon.

Non-profit policy thinktank Environment Northeast released RGGI Emissions Trends & the Second Allowance Auction, a report which said emissions were currently 16 per cent below the cap. It pointed to skyrocketing fossil fuel prices earlier in the year as the primary reason for a lower than expected emissions rate.

“RGGI was negotiated back in early 2003 through 2005, and at that time everybody thought the trend would be up,” said Derek K Murrow, director of policy analysis at Environment Northeast. “Since it was negotiated we’ve seen a signfiicant decline, which is really a good thing. Now the question is whether that trend will continue as the programme starts up in 2009, in which case the cap might need to be bought down more quickly after the first compliance period. Or will emissions return to their historic levels, in which case the cap would be constraining?”

Comments like this suggest that cap-and-trade must deliver a carbon price that is neither zero nor unbearably high, and also force emission reductions beyond anything that happens ‘naturally’ (as a result of lower consumption or developments in eco-efficiency, for example). These characteristics sound more like tax than cap and trade. Cap and trade provides an absolute limit for emissions and a price crash indicates that the limit can be met with no unusual investment. Equally, if emissions rise unexpectedly, a cap and trade market will force decisions about where additional reductions will be made.

That’s the strength of cap-and-trade: unforeseeable events that effect emission levels are reflected in the permit price. If the price crashes due to unforeseen cuts in emissions, the cap and trade scheme is not a failed policy.

No-one seems to like aviation in the EU ETS. :-( I do.

Posted in Carbon markets with tags , , , , , , , on November 6, 2008 by Dan

So, airlines will be in the EU ETS from 2012. No-one seems to like it.

Airlines of course argue that this is bad timing given the looming economic recession and rising fuel costs.

Crisis is not the time for rubber stamps. But that is exactly what the Council of Justice and Home Affairs Ministers used today – without a word of debate – to seal into law the EUR 3.5 billion cost of bringing airlines into the European ETS. It’s Brussels acting in a bubble – even in the middle of a global economic crisis,” said Giovanni Bisignani, IATA’s Director General and CEO.

Instead of a cap, IATA argues that member states should focus on liberalising European airways to improve flight efficiency:

While Brussels has been fast to introduce its regional ETS scheme, it has been slow to improve efficiency. We need the same urgency to deliver an effective Single European Sky that would save billions of Euros in cost and 16 million tonnes of CO2 annually. That we have been waiting decades for this is Europe’s biggest environmental embarrassment.

Campaigning NGOs are no happier with the decision, arguing that emissions from aviation will continue to grow rapidly under the EU ETS.

IATA: the cap will be tough if no-one does anything to meet it. The argument for better air traffic control is not an argument against a cap. Further, as demand weakens compliance with the cap will become cheaper. Witness the carbon price slipping more than 20% over the past month. If recession cuts demand by more than 3% before 2013, no additional cuts will be necessary.

Greenpeace et al: emissions from aviation may continue to grow after inclusion in the EU ETS but only if consumers decide that they want to cut emissions elsewhere instead. The allocation to airlines will decrease from a 2004/6 baseline.

Slumping EUA price makes an equity bounceback look unlikely

Posted in Carbon markets with tags , , , , , , , on January 22, 2008 by Dan

European carbon allowances are slumping alongside share prices. As the value of the FTSE 100 dropped yesterday by 5.5 per cent, EUA 2008 future prices dropped by 6.6 per cent. The price of emissions allowances continues to drop this morning, reaching a five month low of EUR 18.50.

Many traders are pointing to some of the usual drivers of the carbon price, particularly the wholesale price of energy, which has fallen over the past few weeks. That doesn’t add up at all – such a pronounced drop in the EUA price could not possibly be unrelated to a simultaneous plunge in equity markets.

It looks like the market is adjusting its view of the likely demand for carbon allowances over the next 11 months. An economic downturn means lower greenhouse gas emissions, and therefore increased supply of allowances and reduced demand. This does not make the EU ETS any less effective in reaching emissions targets – but it does reduce investment in clean technology.

This view makes an equity bounceback look unlikely. The vast majority of participants in the EUA market are EU ETS installations, meaning that they have a statutory requirement to hold a number of allowances that cover their emissions. A sell-off among these companies reflects gloomy growth prospects.

Note that carbon prices are much more volatile than share prices. A little under a year ago, the EUA 2008 price dropped below EUR 13. If the FTSE 100 was at 3000 last year, the share losses of the past few days would look quite different.

Stopgap legislation required to prevent energy generators holding consumers to ransom

Posted in Energy markets with tags , , , , , , , , on January 17, 2008 by Dan

Newpapers today reported a calculation by Ofgem that credits distributed free to energy generators in the second round of the EU ETS will net them £9bn. The Association of Electricity Producer’s denial did not actually deny it. Ofgem apparently then proposed that the Treasury levy some sort of windfall tax and redistribute it to poor consumers who have been hit by rising energy prices (which are mainly driven by wholesale energy prices, not the EU ETS).

But why should free distribution of the credits yield a windfall? The free credits do have a market value, but the generators cannot sell them because they need them to cover their own emissions. There is a highly inefficient reason behind the windfall: consumers have to bribe generators not to shut down. Once generators have been given credits, one option is to shut down and sell them. Consumers must therefore pay the generators the price of the electricity plus the price of the credits to persuade them not to do so. The credits need not be sold. Ofgem estimates that 17 per cent of retail electricity prices and 13 per cent of retail gas prices is accounted for by this cost.

From 2012, more credits will be auctioned. That will not reduce retail energy prices, but it will put the price of credits in the government’s pocket rather than the generators’. In the meantime, stopgap legislation should be passed to allow the government to repossess credits or fine an EU ETS installation if it scales down or ceases trading. Competition should then push retail prices back down so that they do not include the market value of freely distributed credits.