EU ETS Market Report – November 2018

Carbon prices ended the month of November at €20.50, a gain of 25% from the closing price at the end of October. Screen trading volume in the front-year contract on ICE Futures totaled 432 million EUAs.

The market kicked off November by dropping to €15.10, its lowest level since July, as speculators continued to unwind length following the retreat from September’s ten-year highs.

But prices recovered very quickly to the €18.00-20.00 channel, and daily trading range steadily narrowed into a band between €19.20 and €20.50, representing the 38.2% and 61.8% Fibonacci retracement levels of the drop from September’s high to the November low.

Coincidentally at the centre of this band is the critical €20 level that is increasingly being viewed as the centre of gravity for the December futures market. Earlier in the year open interest in the December €20 call option was the highest of all strike prices, though open positions have tumbled as the contract expiry approaches.

Trading activity has become increasingly dominated by hedging activity around the outstanding €20 call options, and this was reflected in November’s increasingly narrow price band.

Energy fundamentals have also helped support carbon prices. German calendar 2019 baseload power gained 8.9% over the month, while calendar 2019 API2 coal declined 6% and TTF calendar 2019 gas edged up just over 1%. The result was a clear shift in favour of coal-fired generation and therefore demand for carbon.

By mid-month the calendar 2019 clean dark spread had risen to its highest levels so far this year as coal prices declined from the low $90s/mt into the mid-$80s/mt. At the same time, the clean speak spread continued its steady improvement, rising from around -€3.00/MWh at the start of November to around -€1.00/MWh by the end.

Traders believe EUA price  volatility will pick up again over the first two weeks of December, as options hedging shifts into high gear as the expiry of the contract takes place on 12 December.

Preceding the option expiry is the much-anticipated vote in the UK Parliament on the negotiated WIthdrawal Agreement. At present, the odds appear to favour a rejection of the deal, and therefore an increased risk of a “hard” Brexit on March 29 next year.

This implies that UK installations may begin to either sell surplus EUAs, or shift their portfolios to registry accounts in other EU member states in anticipation of that date, as UK access to the EU registry will likely be stopped at the end of March.

Numerous participants have suggested that a significant sell-off is unlikely since many of the largest installations are affiliated to EU entities and will threfore simp[ly transfer their allowances across the Channel. However, there remains a strong possibility that some selling will take place.

The final major market event of the year is the expiry of the December futures contract on 17 December. Open interest in the benchmark is currently 413 million EUAs, the lowest it has been on November 30 since 2012.

General expectations are for prices to begin to recover after the holiday season, with some forecasts calling for levels in excess of €32 during the first quarter of 2019. Much will depend on how soon German auctions resume and on the UK government’s response to the Brexit vote in Parliament.

IEA Report: World Energy Outlook 2018 examines future patterns of global energy system

Major transformations are underway for the global energy sector, from growing electrification to the expansion of renewables or upheavals in oil production. Across all regions and fuels, policy choices made by governments will determine the shape of the energy system of the future.

At a time when geopolitical factors are exerting new and complex influences on energy markets, underscoring the critical importance of energy security, World Energy Outlook 2018, the International Energy Agency’s flagship publication, details global energy trends and what possible impact they will have on supply and demand, carbon emissions, air pollution, and energy access.

The WEO’s scenario-based analysis outlines different possible futures for the energy system across all fuels and technologies.

Oil markets, for instance, are entering a period of renewed uncertainty and volatility, including a possible supply gap in the early 2020s. Solar PV is charging ahead, but other low-carbon technologies and especially efficiency policies still require a big push.

In all cases, governments will have a critical influence in the direction of the future energy system. Under current and planned policies, modeled in the New Policies Scenario, energy demand is set to grow by more than 25% to 2040, requiring more than $2 trillion a year of investment in new energy supply.

In power markets, renewables have become the technology of choice, making up almost two-thirds of global capacity additions to 2040, thanks to falling costs and supportive government policies. This is transforming the global power mix, with the share of renewables in generation rising to over 40% by 2040, from 25% today, even though coal remains the largest source and gas remains the second-largest.

This expansion brings major environmental benefits but also a new set of challenges that policy makers need to address quickly. With higher variability in supplies, power systems will need to make flexibility the cornerstone of future electricity markets in order to keep the lights on. The issue is of growing urgency as countries around the world are quickly ramping up their share of solar PV and wind, and will require market reforms, grid investments, as well as improving demand-response technologies, such as smart meters and battery storage technologies.

Electricity markets are also undergoing a unique transformation with higher demand brought by the digital economy, electric vehicles and other technological change.

The IEA’s Sustainable Development Scenario offers a pathway to meeting various climate, air quality and universal access goals in an integrated way. In this scenario, global energy-related CO2 emissions peak around 2020 and then enter a steep and sustained decline, fully in line with the trajectory required to achieve the objectives of the Paris Agreement on climate change.

More information here

An upsurge in demand for renewable energy from multinational companies is now shifting markets away from fossil fuels in more than 140 markets worldwide

A dramatic upsurge in demand for renewable energy from ambitious multinational companies is now shifting markets away from fossil fuels in more than 140 markets worldwide, a new RE100 report reveals.

RE100 is the corporate leadership initiative led by The Climate Group in partnership with CDP, bringing together the world’s most influential businesses committed to 100% renewable power.

Identifying Japan, Australia, Mexico, Turkey and Taiwan as growth hotspots, the RE100 Progress and Insights Annual Report Moving To Truly Global Impact shows a 41% increase in renewable electricity sourced by RE100 companies in 2017, compared to 2016.

With the falling cost of renewables strengthening the business case for switching, 37 companies are already over 95% renewable, and six members reached their 100% goal for the first time.

Other key findings of the report are:

-More than three in four members are targeting 100% renewable electricity by or before 2030;

-Most members are based in Europe (77), followed by North America (53), Asia (24), and Oceania (1) – with 10 of the 37 new joiners in 2018 based in Japan;

-On average, members are sourcing over a third of their electricity from renewables (38% in 2017);

-Several members have surpassed interim targets – showing businesses can go faster than they first expect;

-IT companies lead on progress (averaging 73% renewable electricity in 2017), and there has been significant improvement from Health Care and Financials;

-The highest share of renewable electricity is still being sourced in Europe (62% in 2017), with Denmark (93%), the UK (82%) and Switzerland (81%) coming out on top;

-Renewable electricity sourced via power purchase agreements (PPAs) almost doubled in 2017, compared to 2016 – an increasingly popular sourcing method;

-As last year, companies see the economic case as a key driver for going 100% renewable, and policy barriers are the most commonly cited barrier;

-Increasingly, members are engaging with policymakers and suppliers to further increase the uptake of renewable electricity.

You can download the report here

Governments need to raise carbon prices much faster if they are to meet their commitments on cutting emissions

Governments need to raise carbon prices much faster if they are to meet their commitments on cutting emissions and slowing the pace of climate change under the Paris Agreement, according to an OECD report.

Effective Carbon Rates 2018: Pricing Carbon Emissions through Taxes and Emissions Trading presents new data on taxes and tradeable permits for carbon emissions in 42 OECD and G20 countries accounting for around 80% of global emissions. It finds that today’s carbon prices – while slowly rising – are still too low to have a significant impact on curbing climate change.

The report shows that the carbon pricing gap – which compares actual carbon prices and real climate costs, estimated at EUR 30 per tonne of CO2 – was 76.5% in 2018. This compares favourably with the 83% carbon gap reported in 2012 and the 79.5% gap in 2015, but it is still insufficient. At the current pace of decline, carbon prices will only meet real costs in 2095. Much faster action is needed to incentivise companies to innovate and compete to bring about a low-carbon economy and to stimulate households to adopt low-carbon lifestyles.

The vast majority of emissions in industry and in the residential and commercial sector are entirely unpriced, the report finds. The carbon pricing gap is lowest for road transport (21% against the EUR 30 benchmark) and highest for industry (91%). The gap is over 80% in the electricity and the residential and commercial sectors.

Country analysis on 2015 carbon prices shows large variations, with carbon pricing gaps ranging from as low as 27% in Switzerland to above 90% in some emerging economies. France, India, Korea, Mexico and the United Kingdom substantially reduced their carbon pricing gaps between 2012 and 2015. Yet, still only 12 of the 42 countries studied had pricing gaps of below 50% in 2015.

New carbon pricing initiatives in some countries, such as China’s emissions trading scheme and renewed efforts in Canada and France to price carbon, could significantly reduce these gaps.


Monthly EU ETS Report – October 2018

EUA prices snapped a 17-month winning streak in October, losing nearly 23% as the market tumbled from €21.21 on September 28 to close at €16.36 on October 31. In euro terms, it was the largest monthly drop in ten years.

On the way down the front-December contract set a new volume record on Ice Futures, with screen trades totaling 576 million EUAs, as traders scrambled to unwind profitable positions.

Most of the damage was done in the second half of the month, as the pace of profit-taking increased following the Carbon Forward conference in London. At the event, senior traders and analysts warned of increased volatility between now and the end of the year as speculators managed massive options exposure, a significant price drop in December, while price forecasts ranged between €25-40 in 2020, and €17-29 by 2030.

The market came away from the conference with the sense that the year’s bull-run was well and truly over, and this triggered a slump in prices starting from €19.27 on October 17 (the first day of the event), representing about two-thirds of the monthly loss.

Timespreads had also enjoyed a strong performance in the previous two months, with the December 2018-December 2019 spread wideing from €0.27 in mid-August to €0.98 two months later. This took the implied cost of carry well beyond the market norm, and traders increasingly sold the spread on the basis that they could finance the carry trade internally much more cheaply.

After mid-month, however, spreads began to shrink as outright prices retreated and buying interest at the wider differentials disappeared. This opened up a profitable buying opportunity for those traders who had shorted the spread, and by the end of October the December 2018/2019 differential was back below €0.30.

There were political headwinds too. The Polish government called for EU intervention in the market, saying that prices had reached a level where additional EUAs could be injected into the market. However, only Romania voiced any support, and as the month ended the “trigger” point for intervention seemed further away.

Continuing uncertainty over Brexit continued to underpin the market, with the UK government issuing an advisory note to business on what may happen in the event of a “no-deal” Brexit. Coupled with statements by the Energy & Climate Minister Claire Perry, there seems to be a growing sense that the UK’s long-term objective, “no-deal” Brexit or not, is to set up its own emissions trading system and link it to the EU’s market.

In the meantime, a no-deal outcome would see UK industry paying a new Carbon Emissions Tax of £16/tonne, while the present Carbon Price Support will continue at £18/tonne. Numerous observers pointed out that this may mean UK industry would get a “free pass” in the first quarter of 2019 if the UK crashes out of the EU with no deal, as the tax would only take effect from April 1 2019.

WHO report: more than 90% of the world’s children breathe toxic air every day

Every day around 93% of the world’s children under the age of 15 years (1.8 billion children) breathe air that is so polluted it puts their health and development at serious risk.

A new WHO report on Air pollution and child health: Prescribing clean air examines the heavy toll of both ambient (outside) and household air pollution on the health of the world’s children.

It reveals that when pregnant women are exposed to polluted air, they are more likely to give birth prematurely, and have small, low birth-weight children. Air pollution also impacts neurodevelopment and cognitive ability and can trigger asthma, and childhood cancer. Children who have been exposed to high levels of air pollution may be at greater risk for chronic diseases such as cardiovascular disease later in life.

Some of the Key findings of this report are:

-Air pollution affects neurodevelopment, leading to lower cognitive test outcomes, negatively affecting mental and motor development.

-Air pollution is damaging children’s lung function, even at lower levels of exposures

-Globally, 93% of the world’s children under 15 years of age are exposed to ambient fine particulate matter (PM2.5) levels above WHO air quality guidelines, which include the 630 million of children under 5 years of age, and 1.8 billion of children under 15 years

-In low- and middle-income countries around the world, 98% of all children under 5 are exposed to PM2.5 levels above WHO air quality guidelines. In comparison, in high-income countries, 52% of children under 5 are exposed to levels above WHO air quality guidelines.

-More than 40% of the world’s population is exposed to high levels of household air pollution from mainly cooking with polluting technologies and fuels.

-About 600’000 deaths in children under 15 years of age were attributed to the joint effects of ambient and household air pollution in 2016.

-Together, household air pollution from cooking and ambient (outside) air pollution cause more than 50% of acute lower respiratory infections in children under 5 years of age in low- and middle-income countries.

-Air pollution is one of the leading threats to child health, accounting for almost 1 in 10 deaths in children under five years of age.

So, actions should be made:

-Action by the health sector to inform, educate, provide resources to health professionals, and engage in inter-sectoral policy making.

-Implementation of policies to reduce air pollution: All countries should work towards meeting WHO global air quality guidelines to enhance the health and safety of children.

-Steps to minimize children’s exposure to polluted air: Schools and playgrounds should be located away from major sources of air pollution like busy roads, factories and power plants.

You can download the report here

Nearly 90% of public pension savings exposed to global warming

The Asset Owners Disclosure Project (AODP) has revealed that only 13% of savings collectively managed by the world’s 100 largest public pension funds have undergone formal assessment for exposure to climate-related risks, leaving $9.8 trillion (£7.5 trillion) unprotected from the economic shocks of global warming. This exposes almost 90% of assets managed on behalf millions of savers worldwide to potential losses in the long term.

According to AODP, part of the responsible investment organisation ShareAction, pension funds are most aware of the risks associated with fossil fuel dependent investments. However, this awareness does not yet seem to have translated into action, with 85% of funds having no formal policy for excluding thermal coal.

50% of pension funds have been found to undertake some form of company engagement with high-carbon companies. However, despite recognising the regulatory and transition risk of fossil fuel investments, these efforts focus largely on improving disclosure, instead of driving action. Furthermore, results indicate an ‘escalation gap’, with only a minority of pension funds (18%) escalating their engagements in case of failure.

With almost 200 nations having ratified the Paris Agreement, only 10% of the largest public pension funds have made formal pledges to align their portfolios with the goals of the Paris Agreement, including Sweden’s AP7 and Finland’s Varma. A further 25% of funds have developed various forms of formal climate-related policies, while a staggering 65% of funds either have no policy, or a broad ESG or responsible investment policy that contain no specific references to climate change.

Promisingly, almost a fifth of pension funds are already performing climate scenario analysis in their investment portfolios, despite the TCFD recommendations only coming out last year, with a further 10% considering how to approach it.

You can see more information here

Paris goals can only be achieved in time with robust bottom-up action

The Intergovenmental Panel on Climate Change this month published its special report on what action is required to keep global temperature increases to less than 1.5 degrees Celsius above pre-industrial levels.

That report made sobering reading, and underlines the scale of the challenge that faces the world today:

  • The earth is already about 1 degree C warmer than in pre-industrial times, and temperatures are expected to rise to 1.5 degrees between 2022 and 2030 if emissions continue at the same level as today.
  • We have already used up most of the carbon “budget” that is available if we want to keep temperature increases below 1.5 degrees.
  • Two-thirds of all primary energy must be renewable by 2050, if we are to remain on track – that includes 97% of all electricity generation. The IEA estimates that at present, renewables provide about 14% of all power.

This is the goal of the Paris Agreement – for the world to become carbon neutral by the second half of the century. Together with the Sustainable Development Goals, this represents a roadmap for growth in the 21st century while minimising negative impacts on our climate and on our environment.

And yet, despite the scientific evidence, there are still nations that are either not convinced of the need to reduce emissions, or are unwilling to do so.

Some governments are resisting the call from the international community, fearing that the changes required will involve too much social upheaval. Countries that rely on coal-fired power are reluctant to create unemployment in their mining sectors, or they believe the investment required to shift to renewable power is too great.

Certain politicians continue to emphasise national interests above the needs of the global community, and reject calls for cooperative action among nations to achieve these necessary goals.

But real demand for change is growing at ground level. Consumers around the world are paying greater attention to the environment and the climate, and making changes to their own lifestyles.


They are also starting to ask uncomfortable questions of the businesses that supply them.

These enterprises, the ones that directly face the general public, such as retailers, service providers, utilities, are being asked to demonstrate that they are considering their impact on the environment and taking measures to reduce their footprint.

More and more people want climate-friendly, environment-friendly solutions. They want to reward those companies that are forward-thinking, that take concrete actions and which are committed to playing a strong role in the fight against climate change and efforts to build sustainability.

Consumers are choosing energy companies who can deliver electricity from wind-farms or solar parks, who are cutting down on single-use plastics, and who are committed to recycling.

Increasingly, retailers are demonstrating their commitment by boosting the use of renewable resources such as replacing plastic bags with paper ones, selecting logistics partners who run carbon-neutral supply chains and by becoming carbon-neutral by purchasing carbon offsets.

Offsets represent a simple and effective way to neutralise the carbon footprint, by ensuring that for every tonne of CO2 a business emits, or causes to be emitted, a reduction of one tonne of CO2 takes place elsewhere.

Planting trees, changing from fossil fuel-generated electricity, switching from petroleum-driven to electric vehicles, even reducing water consumption, are all ways in which the climate impact of business can be reduced.

And for service-oriented companies such as banks an investment funds, there are emerging standards that apply to lending and investment portfolios. The Taskforce on Climate-Related Financial Disclosure, for example, is building pressure on publicly-quoted companies to be more transparent about the impact of climate change on their businesses.

Action doesn’t stop at the retail level, however. In order to widen the scope of possible carbon reductions, these public-facing enterprises are in turn starting to ask the same questions of their own suppliers further up the supply chain.

And as these wholesale businesses encounter more demands for change, they will place increasing pressure on the heavy industries that supply them: the vehicle manufacturers, the electricity providers, and the industrial companies that produce their raw materials.

And once the pressure becomes too great, these primary industries will turn to governments and demand policy changes, such as putting a cost on emissions. Rather than take voluntary action themselves, which may put them at a competitive disadvantage, they will want to ensure a level playing field for all, which national regulation can provide.

Already, these giant primary industry businesses – the likes of Dow Chemical, Norsk Hydro, Akzo Nobel, Braskem and Lafarge Holcim, are banding together in organisations like the Carbon Pricing Leadership Coalition, the Climate Market Investment Association, the  International Emissions Trading Association and the We Mean Business Coalition to put pressure on governments to put a price on carbon or to boost their climate and sustainability ambition in other ways..

National carbon price mechanisms are still at a relatively early stage: World Bank research shows that 51 countries and regions currently have a price on carbon, including the EU’s Emissions Trading System (ETS), or the Western Climate Initiative in California and Quebec.

More countries are considering or even planning pricing systems: China will launch the world’s biggest emissions market in a matter of months, while Latin American nations from Mexico to Chile are readying plans to launch their own carbon markets.

Ground-level demand for action, by consumers, is the most certain way in which to cause the changes we need to see. Companies will always seek to exploit potential growth opportunities, and with demand for climate-neutral and sustainable products growing fast, the opportunity is developing.

There are an increasing number of tools to manage climate exposure for consumers, retail and even light industrial companies. Demand for change from the consumer end of the supply chain is working its way up towards heavy industry, and when that primary sector begins to feel the pressure to shift towards sustainability and climate neutrality, governments will act.

It’s clear that the impetus for change is unlikely to come from above, so it must grow from the ground up. Millions of consumers are already calling for action on climate and sustainable development and business.

Thousands of businesses of all sizes are also responding, but there need to be more. Policymakers around the world must be left in no doubt that we cannot continue with business-as-usual in a world where we are perilously close to triggering catastrophic climate change.

The science tells us we have only a few years left to act, and leadership must come from a community of consumers and businesses. Only when governments are convinced by their people and by their economic actors of the need for change, for ambition, will they catch up.

Alexis L.Leroy. CEO and Founder of ALLCOT Group

Urban climate policies can create nearly 14 million jobs in cities and prevent 1.3 million premature deaths annually by 2030

New research from C40 Cities, The Global Covenant of Mayors for Climate & Energy and the NewClimate Institute, shows that ambitious urban climate policies can vastly reduce carbon emissions globally as well as effectively deliver enormous economic and public health benefits for cities.

Climate Opportunity: More Jobs; Better Health; Liveable Cities estimates that by 2030, a boost in urban climate action can prevent approximately 1.3 million premature deaths per year, net generate 13.7 million jobs in cities.

The report examines a number of effective urban solutions to climate change and the top findings show that:

-Investments in residential energy efficiency retrofits could result in a net creation of 5.4 million jobs in cities across the globe. Such investments would also result in significant household savings, as well as emissions reductions.

-Improved public transport could prevent the premature deaths of nearly one million people per year from air pollution and traffic fatalities worldwide. Improved transport networks could also save 40 billion hours of commuters’ time every year by 2030, while achieving important emissions reductions.

-District-scale renewable energy for heating and cooling in buildings could prevent a further 300,000 premature deaths per year by 2030. Renewable energy could contribute to significant emissions reductions and create approximately 8.3 million jobs.

-Climate action policies can have proportionally greater outcomes for lower income groups in developing cities, where populations have the most to gain from the introduction of new technologies.

You can download the full report here


IPCC Report: Limiting global warming to 1.5°C would require rapid, far-reaching and unprecedented changes in all aspects of society

Limiting global warming to 1.5°C would require rapid, far-reaching and unprecedented changes in all aspects of society, the Intergovernmental Panel on Climate Change (IPCC) said in a new assessment. With clear benefits to people and natural ecosystems, limiting global warming to 1.5°C compared to 2°C could go hand in hand with ensuring a more sustainable and equitable society.

The Special Report on Global Warming of 1.5°C will be a key scientific input into the Katowice Climate Change Conference in Poland in December, when governments review the Paris Agreement to tackle climate change.

The report highlights a number of climate change impacts that could be avoided by limiting global warming to 1.5°C compared to 2°C, or more. For instance, by 2100, global sea level rise would be 10 cm lower with global warming of 1.5°C compared with 2°C. The likelihood of an Arctic Ocean free of sea ice in summer would be once per century with global warming of 1.5°C, compared with at least once per decade with 2°C. Coral reefs would decline by 70-90 percent with global warming of 1.5°C, whereas virtually all (> 99 percent) would be lost with 2°C.

Limiting global warming would also give people and ecosystems more room to adapt and remain below relevant risk thresholds. The report also examines pathways available to limit warming to 1.5°C, what it would take to achieve them and what the consequences could be.

The report finds that limiting global warming to 1.5°C would require “rapid and far-reaching” transitions in land, energy, industry, buildings, transport, and cities. Global net human-caused emissions of carbon dioxide (CO2) would need to fall by about 45 percent from 2010 levels by 2030, reaching ‘net zero’ around 2050. This means that any remaining emissions would need to be balanced by removing CO2 from the air.

Allowing the global temperature to temporarily exceed or ‘overshoot’ 1.5°C would mean a greater reliance on techniques that remove CO2 from the air to return global temperature to below 1.5°C by 2100. The effectiveness of such techniques are unproven at large scale and some may carry significant risks for sustainable development, the report notes.

You can see the report here