Generic Hero BannerGeneric Hero Banner
Latest market news

EU ETS price slump yet to boost coal plant margins

  • Market: Emissions
  • 18/03/20

Fears over the economic impact of the continued spread of the coronavirus pandemic have left EU emissions trading system (ETS) allowance prices this month on track to record their steepest month-on-month decline since the start of the carbon market's full launch in 2008.

But the European coal market's resistance to the downside seen across global markets so far has meant that the carbon market's slump has done little to improve profit margins for coal-fired plant operators in the coming months.

The EU ETS market's front-year contract dropped below the €16/t of CO2 equivalent (CO2e) mark for the first time since July 2018 during trading earlier today, with the product now having shed more than a third of its value since the end of February. This has left the European carbon market on track to record its steepest month-on-month price decrease since April 2006, which fell in what was just a pilot trading phase for the EU ETS before the market's full launch in 2008.

The market's steep losses have come as the coronavirus has prompted a significant reduction in power demand across Europe this month, amid a general economic slowdown and as governments have encouraged remote working where possible. With this having coincided with an unseasonably mild end to the winter period, the requirement for the most emissions-intensive power stations to operate has been significantly reduced, and this is expected to result in a marked fall in the volume of EU ETS allowances required to cover this month's emissions under the scheme.

German coal and lignite-fired power output have averaged only about a combined 12.9GW in March so far, compared with 15.5GW in the same month last year.

Weaker economic conditions are also expected to result in a decline in European industrial activity over the coming months, further limiting related demand for EU ETS allowances, while the coronavirus outbreak has also prompted both governments and airlines to roll out extensive limitations to air travel that are expected to result in a sharp drop-off in aviation-sector emissions under the European carbon market this year.

Further price losses for EU ETS allowances in the coming weeks will risk completely wiping out the historic gains recorded over the past two years. Market values more than tripled over an 18-month period that began in early 2018 and peaked when front-year delivery permits under the scheme reached highs of close to €30/t CO2e last July.

The market's strength has played a significant role in reducing the profitability of coal-fired power production in Europe over this period, helping swing generation economics in Germany in favour of gas-fired facilities that produced more electricity than coal-fired units for the first year on record in 2019.

Lower carbon prices seen this month have raised fears among some environmental groups that a rise in power-sector coal burn may be triggered.

But while the carbon market's losses this month have allowed projected profit margins for German coal-fired generators to widen narrowly, spreads remain at levels that are unlikely to result in any resurgence in production in the near term, with front-quarter spreads still virtually unchanged from where they ended in February.

The expected base-load clean dark spread for a 38pc-efficient German coal-fired unit in the third quarter of this year was calculated at minus €7.65/MWh at yesterday's close, compared with minus €7.55/MWh at the end of February, while the projected year-ahead spread at this efficiency remains at only about €0.55/MWh.

This has come as the effect of the carbon market's losses for clean dark spreads has been offset largely by resistance in European coal swaps values, which are now up marginally on the month. The API 2 contract for the second quarter of this year ended yesterday at $50.25/t, which was about $1.65/t higher than where it stood at the end of February, bucking the trend seen across global energy markets amid support from the physical coal market ahead of an expected production strike in Colombia.

The coal market's resistance means that, at current price levels for European power and fuels markets, the EU ETS front-year contract's value would need to fall by roughly half again from current levels to about €8/t CO2e to take a 38pc-efficient coal-fired unit above a gas-fired plant of 55pc-efficiency or lower in the expected German base-load power sector merit order for next year.

With there appearing to be limited near-term fundamental support for the carbon market as the end of winter approaches, market participants have said the spread of the coronavirus will continue to be the predominant price driver for the foreseeable future, with a period of sustained weakness looking likely.

But the EU ETS continues to sit against a backdrop of potentially supportive supply-side factors in the longer term, including German government plans to cancel a share of allowances alongside coal-fired plant closures, a planned review of the effectiveness of the scheme's market stability reserve (MSR) next year, and the EU's review of its 2030 emissions reduction target later this year, meaning that long-term prospects for the market do remain positive.

If market prices are unable to recover from the price falls early this year, the EU could feasibly opt to accelerate the MSR's supply absorption rate or tighten the market's overall supply cap in an effort to provide support and return values to the levels that would be required to deliver any new 2030 emissions cut goal that is set.

EU ETS front-year price €/t CO2e

German year-ahead spreads €/MWh

German front-quarter spreads €/MWh

Sharelinkedin-sharetwitter-sharefacebook-shareemail-share

Related news posts

Argus illuminates the markets by putting a lens on the areas that matter most to you. The market news and commentary we publish reveals vital insights that enable you to make stronger, well-informed decisions. Explore a selection of news stories related to this one.

News
26/02/25

EU proposes reduced scope for climate disclosures

EU proposes reduced scope for climate disclosures

London, 26 February (Argus) — The European Commission today submitted a proposal to amend the Corporate Sustainability Reporting Directive (CSRD) as part of its omnibus package, which aims at simplifying the regulatory framework on corporate climate reporting. Under the proposal, mandatory sustainability reporting would only apply to large companies with more than 1,000 employees — up from companies with over 500 employees — and either a turnover of €50mn ($52mn) or a balance sheet above €25mn. Listed small and medium enterprises (SMEs), which are due to start reporting in 2027, would also be relieved of the requirement. Overall, this reduces the number of businesses under the scope of the directive by 80pc. For companies falling outside the revised scope and for which mandatory reporting would start in 2026-27, the commission is proposing to postpone the start of the requirement by two years. The use of a voluntary reporting framework is now suggested, based on the standard for non-listed SMEs developed by the European Financial Reporting Advisory Group last year . This will form the content of a separate recommendation. There is also a proposal to revise and streamline the European Sustainability Reporting Standards , which came into force at the beginning of 2024 as part of the CSRD. The standards require companies to make disclosures on the effect of their activities on the environment, including their energy production and consumption, and the risks that environmental issues might pose to them. The use of certificates such as guarantees of origin (GOOs) and renewable power purchase agreements are the only recognised ways to document use of renewable energy. All changes proposed by the commission need approval from the European Parliament and Council. By Giulio Bajona Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

Find out more
News

EU eyes clean industry drive, climate policy tweaks


26/02/25
News
26/02/25

EU eyes clean industry drive, climate policy tweaks

Brussels, 26 February (Argus) — The European Commission today published a wide range of proposals aimed at boosting the bloc's economy, clean energy and technology, while bringing down energy costs. Several legislative proposals aim at simplification, notably on climate reporting. The commission also announced plans to expand demand aggregation and joint purchase schemes, currently in place for natural gas, to other raw materials, including lithium. And an EU critical raw material centre would jointly purchase raw materials on behalf of interested companies. EU climate commissioner Wopke Hoekstra said the commission is going "all out" to protect and advance its economy. "There's no question of turning our backs on climate action," he added, noting the need for a strong business case for decarbonisation. The commission has said it is " staying the course " in terms of its recommended target for cutting greenhouse gas (GHG) emissions by 90pc by 2040, compared with 1990 levels. Hoekstra noted that the commission did not today present 2040 GHG proposals because of the number of other plans unveiled. It is "very clear" that the EU is moving away from Russian gas and also from fossil fuels, energy commissioner Dan Jorgensen said, detailing an affordable energy plan . But a draft document seen by Argus showed plans for more flexibility on long-term supply deals and a "Japanese model" of investment in LNG export terminals. Hoekstra pointed to a new proposed EU bank for industrial decarbonisation, funded with money from the bloc's emissions trading system (ETS). The proposed bank could raise €100bn ($105bn) for industrial decarbonisation projects, including €20bn from the ETS innovation funds, over the next ten years. And that figure could hit €400bn, if leveraged with private funds, Hoekstra said. The commission aims to simplify the bloc's carbon border adjustment mechanism (CBAM). Hoekstra promised exemption for 90pc of the firms currently covered, while later proposals would see changes to scope and new products. Officials note that the exemption does not mean a "delay" of CBAM. The commission is also promising to promote clean products with new public procurement requirements in 2026. And a voluntary carbon intensity label for industrial products will be launched with steel in 2025, followed by cement. The commission also updated state aid rules to boost decarbonisation and clean tech, pledging a new, simplified framework by June. The hydrogen industry, commenting on a draft of the state aid framework, noted a lack of flexibility for EU states to promote demand and close the price difference between fossil- and non-fossil-based hydrogen. And the commission published eased due diligence obligations for some 6,000 EU and 900 non-EU large firms that require business models compatible with keeping global temperatures within 1.5°C of pre-industrial levels, in line with the Paris climate agreement. Qatari energy minister Saad Sherida al-Kaabi has warned that the country could not continue continued LNG exports if the EU did not "thoroughly" review its corporate sustainability due diligence directive (CSDDD). A senior EU official noted a "misunderstanding" on due diligence over a maximum fine of 5pc for firms' total worldwide revenue that would only be applied to "egregious" breaches of the CSDDD, including for serious violations of human rights. By Dafydd ab Iago Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

News

UK should cut emissions by 87pc over 1990-2040: CCC


26/02/25
News
26/02/25

UK should cut emissions by 87pc over 1990-2040: CCC

London, 26 February (Argus) — The UK advisory Climate Change Committee (CCC) has outlined a "feasible" pathway towards a 87pc reduction in greenhouse gas (GHG) emissions by 2040 for the country, from a 1990 baseline. This is "an ambitious target", but it is deliverable, provided action is taken rapidly", the committee said today. Electrification and "low-carbon" electricity generation would make up 60pc of the emission reduction. The CCC recommends a level of 535mn t/CO2 equivalent (CO2e) for the UK's seventh carbon budget, over 2038-42, including emissions from international aviation and shipping. A carbon budget is a cap on emissions over a certain period. They are legally binding in the UK, with the CCC required to advise the government on the levels outlined. The energy transition "will make the UK economy more resilient, by reducing dependence on volatile international fossil fuel markets", the CCC said. It sees net energy imports falling from 867TWh in 2025 to 202TWh in 2050, with the cost of achieving net zero emissions at around 0.2pc of UK GDP annually on average. Upfront investments will lead to savings, it said. The CCC expects the private sector to contribute much of the investment needed, but noted that "policy is needed to provide confidence". Ramping up renewables "UK-based renewable energy provides the bulk of generation in a larger, future electricity system", the committee said. Its pathway envisages a six-fold increase in offshore wind, to 88GW of capacity in 2040 from 15GW in 2023, while onshore wind and solar power capacity reach 32GW and 82GW, respectively, by 2040. It notes the need for nuclear power, energy storage and grid upgrades. The committee also maps a scenario where the industrial sector — often high-emitting and difficult to decarbonise — uses electricity to meet 61pc of its energy demand, "up from around 26pc today". This would allow "UK manufacturers to benefit from global demand for low-carbon goods", the CCC said. For shipping and aviation, the CCC sees a role for "low-carbon fuels", including hydrogen and bioenergy. But the latter is "constrained by the availability of sustainable sources", while the use of hydrogen is limited, the committee said. The fuel has no role in heating buildings and "only a very niche, if any, role in surface transport". Carbon removals plays a role in emission reduction, but carbon capture and storage (CCS) "is limited to sectors where there are few, or no, alternatives". CCS could be used in industrial sectors or alongside hydrogen, it noted. The CCC saw a role for bioenergy with CCS, and direct air capture, although all carbon capture technology would require developing CO2 transport and storage infrastructure and finalise business models, it said. It also flagged the need for nature-based carbon sequestration, such as new woodlands and peatland restoration. The proportion of electric vehicles (EVs) significantly increases in the committee's pathway, to three-quarters of cars and vans and almost two-thirds of heavy goods vehicles being electric by 2040 — up from 2.8pc of cars and 1.4pc of vans in 2023. The falling cost of batteries will allow EVs "to reach price parity with comparable [gasoline] and diesel cars between 2026 and 2028", the CCC said. The pathway has around half of UK homes using heat pumps by 2040, from 1pc in 2023. The UK government must now propose, by 30 June 2026, a level for the seventh carbon budget, which parliament will then approve or reject. The government has in recent months stuck to CCC advice, setting out a national climate plan which pledged an 81pc emissions cut by 2035 , in line with CCC recommendations. By Georgia Gratton Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

News

South Korea to submit new climate plan in September


25/02/25
News
25/02/25

South Korea to submit new climate plan in September

Singapore, 25 February (Argus) — South Korea will submit its new national climate plan, or nationally determined contribution (NDC), to the UN in September, after the deadline of 10 February. The government plans to establish the 2035 NDC with a "challenging and feasible" greenhouse gas (GHG) reduction target, announced the Presidential Commission on Carbon Neutrality and Green Growth on 24 February. South Korea's 2030 NDC, which was submitted in December 2021, aims for a 40pc reduction in emissions by 2030 from 2018 levels. The government also plans to establish the "4th National Climate Crisis Adaptation Measures" for 2026-30. This will include measures to alleviate price volatility of agricultural products owing to the climate crisis, among others. UN climate body the UNFCCC had set 10 February as the deadline for countries to submit their third NDCs, which are supposed to set out climate action and targets up to 2035. But many countries have missed the deadline , while research group Climate Action Tracker found that several are not aligned with Paris accord goals. By Tng Yong Li Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

News

Climate downgraded in EU due diligence rule update


24/02/25
News
24/02/25

Climate downgraded in EU due diligence rule update

Brussels, 24 February (Argus) — A legislative proposal will this week ease requirements under the EU's corporate sustainability due diligence directive (CSDDD) that would oblige large firms to adopt business models compatible with keeping global temperatures within 1.5°C of pre-industrial levels, as per the Paris climate agreement. The proposal, if adopted by the European Parliament and EU member states, would amend the directive to require firms only to "adopt" a transition plan for climate change mitigation, with implementing actions, with the goal of limiting global warming to 1.5°C compared with pre-industrial levels. The European Commission's proposal cuts out the words "put into effect" as an obligation for transition plans that also cover the objective of achieving climate neutrality by 2050. "The revised wording sends mixed signals to companies, creating uncertainty about whether they must follow through on their plans. This ambiguity leaves them exposed to potential legal action compelling them to align with the 1.5°C target," said Amandine Van den Berghe, a lawyer for environmental organisation ClientEarth. The group also criticised "private" commission consultation, notably with the oil and gas sectors. Earlier in the month, EU economy commissioner Valdis Dombrovskis highlighted the need for "simplification" of the CSDDD, but did not specify whether this would address Qatari concerns that the 2024 directive will negatively affect LNG exports to the EU. Ahead of the commission's presentation of the simplification proposals, Green chair of parliament's internal market committee Anna Cavazzini said dismantling sustainability laws will not solve structural economic problems. EU laws must be as "unbureaucratic as possible", she said. "The leaked reform of the EU due diligence law goes far beyond that and simply guts it." By Dafydd ab Iago Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

Generic Hero Banner

Business intelligence reports

Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.

Learn more