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.
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Australia’s safeguard credit selling interest unclear
Australia’s safeguard credit selling interest unclear
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US judge halts 'pause' on LNG export licenses
US judge halts 'pause' on LNG export licenses
Washington, 1 July (Argus) — A federal judge in Louisiana has ordered President Joe Biden's administration to end its five-month-old "pause" on the approval process for new LNG export licenses until the resolution of a lawsuit by states that said the policy is unlawful. The US Department of Energy (DOE) and other administration officials are immediately "enjoined and restrained" from "halting and/or pausing the approval process" for LNG export applications requesting licenses to export to countries without a free trade agreement with the US, federal district court judge James Cain wrote today. DOE did not immediately respond to a request for comment. The court's ruling is a potential blow for the Biden administration, which had said it would need until the first quarter of 2025 — after the November elections — to finish a more thorough review of the economic and climate-related effects of fully licensing LNG terminals, beyond the 48 Bcf/d of US liquefaction capacity that is fully permitted today. DOE officials have cited concerns that licensing more LNG projects could end up increasing natural gas prices for consumers. "So much has changed, including the volumes of what we're exporting," US deputy energy secretary David Turk said last week at a congressional hearing. "So we said, 'Let's take a step back, let's update our economic analysis." Biden announced the LNG licensing pause in January, delighting climate groups that have argued that approving additional projects would amount to a "climate bomb." But the pause enraged gas industry officials that worried the pause could threaten investments in a set of projects that were nearing a final investment decision. The pause raised uncertainty on the status of LNG export projects that have yet to obtain licenses, including Venture Global's proposed 28mn t/yr CP2 project in Louisiana that last week cleared a key part of the federal permitting process. The court's ruling does not explicitly require DOE to issue new LNG export licenses, or set an explicit deadline for the agency to take final action on pending applications. But the judge said that under the Natural Gas Act, DOE is required to act "expeditiously" once it receives an export application. Before Biden formally announced the pause, some LNG export applications were already subject to reviews that industry officials said amounted to a de facto freeze. In the ruling, Cain said that Louisiana and other states that challenged the LNG licensing pause were likely to succeed on the merits in showing Biden's policy was arbitrary and capricious, in part because DOE failed to provide a "detailed explanation" for its halt of the approval process. Cain said that DOE had made a "complete reversal" from its position in July 2023, when it defended its licensing process in its rejection of a complaint from environmentalists. By Chris Knight Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Denmark to launch carbon tax on agriculture from 2030
Denmark to launch carbon tax on agriculture from 2030
Dalby, 1 July (Argus) — The Denmark coalition government has introduced the world's first carbon emissions tax on agriculture, which will take effect from 2030. The agreement was reached on 24 June after five months of negotiations between the Government of Denmark, the Danish Agriculture and Food Council, the Danish Society for Nature Conservation, the Confederation of Danish Industry, Danish trade union NNF that organises workers within the domestic slaughterhouse and meat industry, and association Local Government Danish. Farmers will have to pay 120 Danish kroner/t ($17.30/t) of emitted CO2 equivalent from livestock from 2030, rising to DKr300 from 2035 onwards. Revenues from the tax will be channelled back to the sector and reinvested into green initiatives, climate technology, and production transformation, targeting agricultural sectors facing the most difficulty transitioning, according to the British Agriculture Bureau (BAB). Copenhagen is a significant exporter of pork and dairy, and agriculture is currently expected to account for 46pc of emissions by 2030. Experts believe the carbon tax will cut these emissions by 1.8mn t in 2030, its first year of operations, enabling Denmark to meet its target of cutting 70pc of its total emissions by that year, according to BAB. Resistant farmers have brought traffic to a standstill in European capitals several times this year, in protests for EU leaders to remove rules designed to clean up the agriculture sector. New Zealand in late 2023 delayed the introduction of a proposed tax on cow emissions which was set to start at the end of 2025, but the newly elected New Zealand government in June cancelled the plan to tax livestock producers on methane production. The then New Zealand government had forecast the levy would have reduced the amount of methane released by livestock into the atmosphere by as much as 47pc by 2050, without disclosing the baseline year. By Jessica Clarke Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
British Columbia raises biofuels output goal
British Columbia raises biofuels output goal
New York, 28 June (Argus) — British Columbia has increased by 15pc its 2030 goal for renewable fuels production in the province, driven by the success of its low-carbon fuel standard (LCFS). The province aims to produce 1.5bn liters/yr (26,000 b/d) of renewable fuels by 2030, up from its prior goal 1.3bn l/yr, the government said Thursday in a report on its clean energy strategy. British Columbia's LCFS has driven investment in petroleum alternatives and enabled more ambitious biofuel targets, with the province on track to produce 840mn l/yr of renewable fuels by 2026, according to the report. The new goal specifically covers renewable liquid fuels like renewable diesel and sustainable aviation fuel. The province also aims to scale up renewable natural gas and hydrogen, the report said. British Columbia's LCFS targets a 30pc reduction in the carbon intensity of the diesel and gasoline fuel pools by 2030 as well as a 10pc reduction in the carbon intensity of aviation fuels. The provincial program, which operates alongside new federal requirements, has the toughest reduction targets of any North American LCFS. LCFS programs require yearly reductions in transportation fuel carbon intensity. Conventional, higher-carbon fuels that exceed annual limits incur deficits that suppliers must offset with credits generated from the distribution of approved, lower-carbon alternatives. British Columbia justified its renewable fuels goals in the report, arguing that "liquid and gas fuels will remain essential for the foreseeable future" for long-haul transportation, industry, and remote communities with less access to electricity. A more ambitious domestic production target is also designed to reduce the province's dependence on fuel imports. The only provincial fuel producers are Tidewater Midstream and Infrastructure's 12,000 b/d refinery and Tidewater Renewables' 3,000 b/d renewable diesel refinery in Prince George as well as Parkland's 55,000 b/d refinery in Burnaby that co-processes renewable feedstocks with conventional petroleum feedstocks. By Cole Martin Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
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