The ICE Global Carbon Futures Index value (ICECRBN) reached a record on Feb. 12, with a weighted average price of $39.08/ton, the exchange said.
EU allowances, which make up most of the index, closed that day above 40 euros for the first time, as policy makers in the region and beyond are seen tightening climate measures.
The index measures the performance of a long-only basket of EU futures, California Carbon Allowance (CCA) futures and Regional Greenhouse Gas Initiative (RGGI) futures. It’s calculated and published in real-time.
EU carbon futures have not closed above 40 euros since:
“When ICE first entered the environmental markets, these were nascent, niche markets. Today they are among the fastest growing markets globally, offering a transparent, accessible and market-led route for the world to price climate risk on a global scale”, said Gordon Bennett, Managing Director of Utility Markets at ICE, in an emailed statement.
“As climate risk and the energy transition impacts more and more companies regardless of sector, a broad set of solutions will be required to help the adoption of wider and more ambitious cap and trade programmes, complemented by offset markets which encourage investment in high quality, credible projects.”
–Hydrogen supply chain companies eg Siemens and Alstom: “like selling picks and shovels in the California gold rush” –Clever contracts for difference, emissions market seen bringing investment forward, needed to meet Paris-climate-deal goals –China and U.S. could jump on board, as Europe leads way
ANALYSIS SUMMARY
By Mathew Carr
March 4, 2021 –LONDON: Hydrogen, including its green variety, will increasingly replace carbon as the dominant energy carrier on the planet, according to Morgan Stanley analysts.
Cumulative investments in renewable hydrogen in Europe, which has the most developed policy to encourage H2, could be up to €180-470 billion by 2050, and in the range of €3-18 billion for low-carbon fossil-based hydrogen, analysts including Ben Uglow and Katie Self wrote in a March 3 research note.
“Within this, by 2030, investments in electrolysers could range between €24 billion and €42 billion, while €220-340 billion would be required to scale up and connect 80-120 GW of solar and wind energy production capacity to the electrolysers.,” they said.
Based on estimates by the Hydrogen Council and IEA, the volume of hydrogen produced globally is set to jump from about 70mt today to about 545mt by 2030, an eight times increase.
“Hydrogen will transition from a dirty feedstock used in industrial processes to a clean fuel source adopted by power, industry and mobility in particular.
“Like selling picks and shovels in the California gold rush, we look to capital equipment companies to supply tools that facilitate this transition.
Polymer electrolyte membrane (PEM) electrolysis and hydrogen-fueled trains are key examples of opportunities.
“For PEM Electrolysers, our base assumption is 8.7% CAGR through 2050 to $19.5bn; bull case 11.7% to $44.1bn. For hydrogen trains, base case assumes 12.9% to $24.2bn; bull case 15.6% to $48.4bn,” the analysts wrote.
In these scenarios, these emerging industries are set to be bigger than gas-fired power generation and on a par with onshore wind within two decades.
The analysts raised their Siemens Energy price target to €40. — “Uniquely placed to capitalise.” (€29.30 now)
They boosted Alstom to €59 — “Best-placed in hydrogen rail globally.” (€43.65 now)
Source: Morgan Stanley note
Investments in carbon capture and storage are estimated by the EU Commission at around €11 billion, while €65 billion will be needed for hydrogen transport, distribution, storage and refuelling, Morgan Stanley said.
In Europe, Funding support will come from the region’s recovery fund. Individual countries have also pledged sums to kickstart the hydrogen economy.
“Other support schemes to be considered include tendering systems for carbon contracts for difference to accelerate the replacement of existing hydrogen production in a range of industries from low-carbon steel to basic chemicals and incentivisation through the EU emissions trading system.”
Green hydrogen becoming cost competitive with fossil-fuel hydrogen by 2030.
A long way from alignment with the Paris Agreement
While Europe’s ambitions for hydrogen are clear, achieving the targeted 40GW rollout by 2030 would “still be only a small step towards what is required to achieve the Paris Agreement,” Morgan Stanley said.
“We forecast that about 1,600GW of electrolyser capacity is needed globally by 2030 and about 4,600GW by 2050 in order to be on track to stay within a 2ºCelsius scenario for climate change.”
Elsewhere, global policy on hydrogen is ramping up, but still early stage, tha analysts said.
“China’s net zero commitment could accelerate the adoption of hydrogen use and particularly in transport. We note that China has defined hydrogen fuel cells as an important part of its national strategy for GHG abatement. Japan plans to have 10% of its energy mix from hydrogen and ammonia by 2050 and has set aside a ¥2trillion (US$19.2 billion) fund to assist ambitious green projects, including hydrogen, low-cost storage batteries and carbon-recycling technology.
“In the US, President Biden is set to drive a change of tone on climate policy. At the same time, renewable economics could continue to improve to the point that green hydrogen might be competitive against new conventional hydrogen. However, the timeline is unclear at this stage.”
–Push for carbon border adjustments seen in drive for climate justice, higher CO2 prices and steeper tax rates –Governments can also “nudge” change, not just force it –Post-Brexit British system can be model for the world
By Mathew Carr
March 2-3, 2021 — LONDON: British Prime Minister Boris Johnson and Chancellor Rishi Sunak have a chance to change U.K. and global history today; there’s only a small chance they’ll take it.
Challenging the people (Conservative Party members) who put you in power takes courage. I’m not sure these gentlemen have enough bravery, but I hope I’m wrong.
What the pandemic has clearly shown is how fragile health, economy and society is.
Some libertarians in Johnson’s party no doubt believe conservatism and freedom equals pretty much doing what you damn well please. This notion goes against what the pandemic has shown us.
No, burning the crap out of fossil fuels does not equal freedom. It’s clearly going to ruin the life of pretty much everyone on earth as the climate changes, bringing floods, droughts, wildfires and disasters.
Helping lead the G7 countries gathering this year and the United Nations climate talks in November, Johnson and Sunak right now have a rare chance to SHOW the world a better way. Unless they do it today however, the chance will have been lost until the UN negotiations, when they will only be able to TELL the world, not SHOW it. That’s a much weaker position.
Changing the tax system to focus on adjusting bad behavior, including the burning of fossil fuels, makes a lot of sense. Polluters need to start paying for the damage they cause.
It and other EU nations made more than 57 billion euros selling EU allowances until the middle of last year. After the U.K. introduced a carbon floor support in 2013, it made even more. That floor helped fill a gap in the country’s budget after the global financial crisis more than a decade ago, so there’s a precedent. The pandemic has left a huge gap and the money from the floor as well as the country’s new U.K. market is set to bring in the cash.
The higher the price, the bigger the revenue. Here is an earlier scenario from Vivid Economics setting out the range of possible prices:
A U.S. professor has been advocating for Britain to showcase the fee and dividend model because U.S. lawmakers are too beholden to oil, natural gas and coal:
The freedom delivered by Brexit allows Sunak to adopt an aggressive, post free-market capitalism model and make a few more important tweaks during the next eight months, before the climate talks in Glasgow. Here’s a little roadmap:
Flag to U.K. voters that the country’s poor will be protected from cost increases that hit them because of higher carbon prices. The carbon “fee and dividend” system can become a global standard. Britain is already doing this to some extent because it has energy regulations that protect those in “fuel poverty”. In a related move, fossil-fuel subsidies can be dropped, saving taxapayer money (Fossil-fuel subsidies are effectively negative carbon prices.)
Say to airlines landing or taking off in Britain and their customers that the price offered online MUST INCLUDE the cost of offsetting the carbon dioxide caused by a flight, starting in July this year. (Britain has already flagged it plans to do this and this timing will allow the nation to capture the post-pandemic holiday exodus). This forces buyers to think, requires them to uncheck a box saying they are unwilling to pay the offset costs. Importantly, offsetting should start as a “nudge” rather than a mandatory requirement. Rich people should be discouraged from unchecking that box. Sunak could also announce bringing this mandatory offset offering to the petrol pump as soon as possible. Only the poorest in society should tick the box on the pump that allows them to wiggle out of the environmental cost of their fuel. Such a system would help companies seeking to hit net-zero emissions targets.
Plan to adjust the tax system so that it’s more sustainable as soon as possible, meshing it with the carbon pricing and green-trade rules. The widening gap between rich and poor will be addressed at some point. Should the Conservative party undertake this difficult task, it’s likely to take away the political opportunities of the opposition party, Labour. The government is already planning to include climate risk disclosure into accounting rules as mandatory starting from 2023, so tweaking capitalism a little more to make it target goals other than profit would be the right thing to do right now.
This three-point plan may not be as unlikely as it seems. The U.K. is already seeking to position itself as a global climate and tax leader, including via its G7 role.
A person familiar with the government’s situation said this:
Climate change is a key priority of the British government’s G7 Presidency, including a push for “a lasting green recovery.”
It’s much easier said than done. G7 leaders published a statement Feb. 19 outlining climate priorities including for a just transition to net zero, including tax reform. The G20 and China is also in the frame.
Emerging nations are worried rich-country climate policy might limit their exports.
Britain is seeking to deal with that concern. The U.K. will continue to work with developed nations on how to best reduce emissions, including industrial production gases, in a way that does not disadvantage developing countries, the person said.
One way of ensuring the U.K.’s climate policy doesn’t lead to increased emissions elsewhere are Carbon Border Adjustment Mechanisms, one of which is planned by the EU by 2023. This could further increase government revenue.
Energy intensive goods would face a “price adjustment” if they are coming from countries with lax climate policy.
“Carbon border adjustments should be treated as a part of an international, multilateral effort which is the best way to prevent carbon leakage,” the person said.
As the Business Secretary said in the U.K. parliament on Dec. 16 (while Energy Minister): “…if we impose a tax unilaterally on carbon-emitting products coming into this country, we may well be disadvantaging our own consumers if others around the world are not placing such a tax. The Government feels that multilateral co-operation in this regard is by far the best way to prevent carbon leakage.”
Further investigation is needed in order to understand how such a measure would be implemented, whether it would comply with World Trade Organisation rules, and how effective it would be, the person said.
Some Conservatives are calling for immediate tax rises, so there’s hope.
On the other hand some are arguing “now is not the time,” for tax increases, blaming the pandemic.
This seems wrong headed. The pandemic provides a perfect reason (not an excuse) for clever tax rises, especially where they help show the world how to save the climate.
Feb. 26, 2021 — LONDON: ICE Futures Europe said it would start auctioning new U.K. emissions allowances on May 19.
On the same day, it will begin offering futures contracts and two days later a prompt contract, UKA Daily Futures, subject to regulatory approval, ICE said in an e-mailed statement. The first of fortnightly auctions would include 6.05 million tons of allowances.
Britain was forced out of the EU carbon market, the world’s biggest by traded volume, following its vote in the middle of 2016 to leave the union.
“Today’s publication will give businesses and operators clarity over this year’s supply of emissions allowances, enabling them to plan ahead, build back greener and better prepare for the transition to a low-carbon economy,” said U.K. Energy Minister Anne-Marie Trevelyan, in the statement.
The U.K. ETS will be pivotal in supporting the climate ambition of the four governments of the U.K., said Gordon Bennett, Managing Director of Utility Markets at ICE.
“U.K. emissions have fallen 41% since 1990, more than any other major developed country and this has been driven by the U.K.’s leadership in promoting market-based mechanisms to support climate goals. There is an enormous opportunity for cap and trade programs to take an even greater role in supporting the goals of the Paris Agreement, whether it is increasing their sector coverage or encouraging international linking,” Bennett said.
Feb. 26-27, 2021 — LONDON: A former climate negotiator for India, one of the huge developing countries least to blame for the climate crisis, looked on as the U.S. Energy Information Administration apparently missed Joe Biden’s plan to cut emissions to net zero by the middle of the century.
See this chart from earlier this month, showing U.S. energy emissions doing very little over the next three decades:
Are big-consuming western countries and China, which are most to blame for global warming, really serious about protecting the climate? asked 72-year old Surya Sethi, former climate negotiator for the world’s second-most-populous nation. He says they are not.
“Nothing’s going to happen,” at United Nations climate talks in Glasgow in November, he said by phone.
The EIA said it expects U.S. emissions to rise in the later half of its projection because “of increasing economic growth that leads to growing industrial energy requirements. EIA projects energy use in transportation will increase as vehicle fuel efficiency plateaus in the mid-2020s and becomes outweighed by increases in vehicle travel demand.”
While many world leaders including U.S. President Joe Biden are willing to talk about net zero in the middle of the century, they are very slow to get on that pathway.
The real importance of “zero” in the climate debate is its relevance as the best measure of the level of seriousness of the developed world to tackle their overconsumption problem, Sethi said by phone. China, a key supplier of goods to the west, has been drawn into that system and is now a big part of the problem.
An analysis of updated Nationally Determined Contributions to the Paris climate deal published Friday by the UN Climate secretariat showed the increased ambition being offered by countries is tiny, cutting emissions by less than an extra 1% in 2030 vs 2010.
The Intergovernmental Panel on Climate Change (IPCC), by contrast, has indicated that emission reduction ranges to meet the 1.5°C temperature goal should be around -45% in 2030 compared to 2010.
Oxfam’s Global Climate Policy Lead, Nafkote Dabi, is another who’s far from happy with the situation and responded like this to the UN analysis:
Appalling
“Today’s report findings are appalling. The combined climate plans submitted account to a dismal 1% emissions reduction, far below the 45% reduction needed to limit global warming below 1.5 degrees, and avoid disastrous impacts on vulnerable communities.
“While some countries who have contributed least to the climate crisis have increased their ambition, industrial and rich countries most to blame for global emissions, have miserably failed to step up to their responsibility.”
The Paris climate deal was struck in 2015 with much back slapping. Ambition was meant to be ramped up every five years. It’s simply not happening.
Countries are falling way short and Sethi is right. (The U.S. and China are planning to update their emissions mitigation and adaptation plans during the next few months.)
The lack of ambition comes despite the fact it’s almost three decades since the UN Framework Convention on Climate Change was formed in 1992, Sethi said. It’s way beyond the time when world leaders can pretend they don’t know what’s going on with climate risks.
“The needle will move only when 10,000 Americans die because of climate change,” Sethi said.
Rich-nation voters don’t seem to care so much about the 50,000 Indian farmers committing suicide, partly because of heart-breaking weather events, he said. “One billion Indians will perish” at current warming rates, he said (in what I hope is eye-popping exaggeration, but might not be over the 80 years left in the current century).
Feb. 25, 2021 — LONDON: The mother of all market regulators says global markets are in a mess on sustainability.
Investors wanting clear disclosure on the climate and natural-environment impact of the bonds and shares they buy are not being well served, the International Organization of Securities Commissions said yesterday.
“Companies often report sustainability-related information selectively, referencing different frameworks,” the organization said in a statement on its website: https://www.iosco.org/news/pdf/IOSCONEWS594.pdf
IOSCO said there was an “urgent need” for globally consistent, comparable and reliable sustainability disclosure standards.
On the same day, the Division of Corporation Finance of the Securities Exchange Commission was ordered to enhance its focus on climate-related disclosure in public company filings. SEC staffers “will review the extent to which public companies address the topics identified in the 2010 guidance,” said Acting Chair of the SEC Allison Herren Lee. See this: https://www.sec.gov/news/public-statement/lee-statement-review-climate-related-disclosure
“Whilst anyone familiar with Taskforce on Climate-related Financial Disclosures (TCFD), integrated reporting and the Global Reporting Initiative (GRI) Standards is likely to be favourably disposed to the proposed reporting requirements, the conceptual framework underpinning them is flawed,” said Carol Adams, Professor of Accounting at Durham University Business School and technical expert to the UNDP’s Sustainable Development Goal Impact Team..
Feb. 24, 2021: LONDON — As utilities with U.K. coal and natural gas generation switch to new British carbon allowances during the next few months, the value of those permits and the European Union ones are set to fluctuate wildly, according to traders.
The U.K. carbon price seems likely to be higher than that in the EU following Brexit, based on current indications.
The expected implementation of the post-Brexit U.K. market by June will be complicated by the country’s floor support. Adding the U.K. floor of 18 pounds a ton to the U.K’s upgraded auction reserve of 22 pounds gives an indicated minimum level of 40 pounds a ton.
Source: ICE Futures Europe, U.K. government data
That’s about 46 euros a ton, or 7.40 euros, 19%, more than current prices for EU carbon futures on the ICE Futures Europe exchange.
According to my survey of traders, some are expecting prices for the traded U.K. allowances near the 22 pound a ton level, yet demand in the secondary market could be strong initially if supplies in the first few auctions — the primary market — are not high.
EU carbon allowances have surged through 40 euros a ton during the past few weeks after breaking through 30 euros for the first time only back in December.
Debate about how Brexit will roil the EU’s carbon market has caused fluctuation in prices ever since the British vote to leave in the middle of 2016.
Since the end of the transition period in December, some coal and gas generators in Britain have used EU allowances as a proxy for U.K. carbon because the new British contracts are not yet available.
A 19% price difference is certainly wide enough to boost demand in Britain for EU-generated power, which could be a boon for mainland Europe generators, according to a trader at a big bank.
British fossil-fuel generators have had a great start to 2021, because the winter cold snap and low levels of wind generation caused demand for power and gas to surge.
When these utilities switch into U.K. allowances by selling the EU permits they have built up, that will probably still shift prices.
Feb. 18, 2021 — LONDON: The problem with existing carbon markets is that they are tainted by complication.
It’s hard to know if you are getting good value for money or even if you understand what the heck you’re buying.
Market Stability Reserves (MSRs), Certified Emission Reductions (CERs), corresponding adjustments (CAs), additionality, carbon border adjustment mechanisms (CBAMs), Reducing Emissions from Deforestation and Forest Degradation (REDD), sustainable development goals (SDGs), Verified Carbon Standard (VCS) and one of my personal favorites: common but differentiated responsibilities and respective capabilities (CBDR-RCs).
Now, artificial intelligence is going to bring a new level of transparency and simplicity that will make the markets work better for the corporate buyer, for the politician in almost 200 nations seeking cost-effective policy under the Paris climate deal and even potentially for the mum-and-dad investor.
One of the big problems currently is that a buyer just can’t tell how beneficial a carbon credit is. OK, it’s apparently worth one ton of carbon dioxide, but has it helped alleviate poverty in a least-developed nation? Are there human rights issues linked to the project? Has it helped improve water quality for the people living around the project that created it?
Digitization will help the market thrive by putting carbon credit buyers in charge of making sure they get what they want.
Viridios Capital, a Sydney, Australia-based asset manager, has written a paper to show how some of it might work.
This one shows how a credit generated in Cambodia worth on the surface $3.71 a ton actually has a fair value of $28.02 a ton, taking into account other UN sustainable development goal metrics.
As corporates seek to set and meet net zero targets without damaging their reputation and environmental lobby groups try to make their lobbying is more sophisticated and targetted, this AI will help tremendously.
Another example. Here’s why a solar credit from India might be worth less than the forestry credit in Cambodia, even when all the sustainable development goals are not ascribed a value:
The machine learning is from a database of past transactions, part of Viridios Capital’s intellectual property.
The machine learning is just getting started, says Eddie Listorti, the CEO of Viridios, speaking by phone from Australia. The note was in response to the final report by the Taskforce to Scale the Voluntary Carbon Market, which is seeking to cut the risk for corporates taking on aggressive emission-reduction, or “net-zero” targets.
It’s difficult to overstate the importance of cutting these risks, especially for high-emitting companies. It’s easy to forget that much of the climate damage caused during the past 100 years or so has been by just a few hundred huge commercial business groups around the world.
Even with the AI, there’ll still be a strong need for smart, tough regulation overseeing it.
–G7 outcome highlights chance of climate deal, multilateralism, new system of planet-friendly trade via G20 by June
By Mathew Carr
Feb. 18-20, 2021 — LONDON:
OPINION: The world now needs carbon prices of about $100 a ton in 2030 to spur sufficient climate action to meet the 1.5C temperature increase goal in the Paris climate deal.
That is about double the level targeted just a couple of years ago by the Obama administration. The higher price is required because global emissions are still very high, even though nations have become more ambitious, with many adopting mid-century net-zero targets.
The required price could be even higher. Lawmakers realise they need to embrace widespread climate measures across the economy, so carbon prices now need only do part of the emissions-cutting work, and clean technology has advanced apace.
I’m heartened by the seven Republican senators who voted to impeach former president Donald Trump. It shows the Republicans are far from a lost cause.
Three more level heads than in the impeachment vote seems very possible indeed.
I reckon Biden-Harris can convince the ten because the U.S. now has a chance to catch up with, and even overtake, Europe by setting a logical policy framework for cost-effective emission cuts.
Europe’s climate policies have proved fairly effective, but they are still way too complicated and far from cost optimal. That stems from the nature of EU policymaking, nationalistic geopolitics and compartmentalized public debate.
The prospect of moving ahead of Europe will prove too tempting for at least 10 Republicans.
The prospect of the U.S. biting at its heels will make the EU even more ambitious.
The U.S. senators will be convinced not because they are becoming more progressive or leftist, but because U.S. companies don’t want to face a tax on Europe’s borders as they seek to boost exports post pandemic. Trillions are going to be spent on the climate transition during the next 10 years — that’s a considerable carrot.
The flipside stick is the EU plan for a so-called carbon border adjustment mechanism by 2023 on nations without climate policy that’s ambitious enough.
The G7 leaders meeting Feb. 19 — the day of the U.S.’s reentry into the Paris agreement — acknowledged the importance of a global trade regime that serves the planet.
“We will work together and with others to make 2021 a turning point for multilateralism and to shape a recovery that promotes the health and prosperity of our people and planet.”
Here is another key G7 passage: We will: champion open economies and societies; promote global economic resilience; harness the digital economy with data free flow with trust; cooperate on a modernised, freer and fairer rules-based multilateral trading system that reflects our values and delivers balanced growth with a reformed World Trade Organisation at its centre; and, strive to reach a consensus-based solution on international taxation by mid-2021 within the framework of the OECD. With the aim of supporting a fair and mutually beneficial global economic system for all people, we will engage with others, especially G20 countries including large economies such asChina.
So higher carbon prices could include taxes or markets.
The mention of China is crucial because unless the world’s biggest emitter and most populous nation is drawn into the climate and trade solution it’s difficult to see how the Paris limits can be met.
U.S., including climate envoy John Kerry, has engaged with India and Brazil in recent days.
Here’s the Google Translation of the following embedded tweet from the Brazil Foreign Affairs Minister: Min. Ricardo Salles and I had a conference call today with Secretary John Kerry, US Special Representative for Climate Change. Dialogue and cooperation on environment and climate will be another aggregating element in the Brazil-USA partnership that we continue to build.
O Min. Ricardo Salles e eu tivemos hoje teleconferência com o Secretário John Kerry, representante especial dos EUA para Mudança do Clima. O diálogo e cooperação sobre meio ambiente e clima serão mais um elemento agregador na parceria Brasil-EUA que continuamos construindo. 🇧🇷🇺🇸 https://t.co/XAt4MVSKrP
Because a G20 deal on trade and climate is in the frame of possible outcomes this year, self interest will prevail in the U.S. Senate.
If it doesn’t — if the U.S. fails to act ambitiously now (in the next 2 years), it’ll miss a rare chance and potentially be defeated by Europe and China (and others) in what’s firmly become a global climate-transition race.
(Updated Saturday with G7, Tweets, context, links)
NOTES: The Group of Seven (G7) is an intergovernmental organization consisting of Canada, France, Germany, Italy, Japan, the United Kingdom and the U.S. The heads of government of the member states, as well as the representatives of the EU, meet at G7 gatherings/video conferences.
Feb. 15, 2021 — LONDON: Milder temperatures are set to curb demand for EU carbon allowances, even as interest from compliance buyers and investors apparently pushed prices to record levels last week.
Still, there’s plenty of chilly weather around Europe the next two weeks, especially in the east.
