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EU should ‘reset’ ETS supply cap next year: Sandbag

  • : Emissions
  • 20/04/09

The EU should use the UK's impending departure from the EU emissions trading system (ETS) at the end of this year as an opportunity to "reset" the carbon market's supply cap at current greenhouse gas (GHG) emissions levels and align it with the bloc's likely goal of reaching net zero emissions by 2050, environmental think tank Sandbag has said.

The UK is due to exit the EU ETS at the end of this year, having had its participation in the scheme extended during the continuing Brexit transition period, with this departure coinciding with the carbon market's shift from its current third trading phase (2013-20) to phase four (2021-30).

And with this meaning that the EU ETS supply cap — the overall number of carbon allowances in circulation in the market — requires revision to reflect a smaller number of participating nations, the EU should take the opportunity to reset the phase four cap completely to a level that better reflects recent GHG emissions output under the scheme, Sandbag EU ETS analyst Eliot Tabet told Argus.

A large surplus of EU ETS allowances has built up over the course of phase three, with emissions from sectors covered by the market having fallen faster than expected as member states have imposed carbon pricing measures on national bases that have undermined the effectiveness of the wider European market.

The EU last year introduced a Market Stability Reserve (MSR) mechanism in a bid to reduce the size of this surplus by removing roughly a quarter of the excess each year until 2023. But with the market containing a much larger number of unused allowances than had been predicted, the MSR will struggle to fully tackle the size of the surplus, especially if its annual withdrawal rate is slowed to just 12pc/yr from 2024 as currently planned, Tabet said.

Instead, resetting the market's supply cap next year at a level much closer to current output would enable the EU to remove the entirety of the surplus at once and ensure that covered sectors are put on a trajectory to reach climate neutrality by steadily decreasing the cap each year to eventually reach zero by 2050, he said.

"The surplus will be larger than anyone has foreseen, making the MSR less relevant unless it is adjusted," Tabet said. "This is why we are calling for the cap to be reset. In any case, the end point of it will have to be set to 2050 net zero and, with Brexit, we will have to restart the cap anyway. We should use that to remove the surplus and not carry it into the next phase."

The EU ETS supply cap at present stands at roughly 1.8bn t of CO2 equivalent (CO2e), but actual emissions under the scheme are estimated to have only amounted to about 1.5bn t CO2e last year — a level to which the cap is not currently due to fall until the late 2020s.

Emissions produced under the EU ETS this year are also expected to fall significantly, as the Covid-19 pandemic has cut power demand, industrial activity and air travel. Actual output in 2020 could turn out to be up to 20pc below the supply cap, further increasing the urgency that the market's surplus is addressed before the start of its next trading phase, Sandbag's EU engagement lead, Suzana Carp, said.

The rate at which the cap falls each year is determined by the market's linear reduction factor (LRF). This is due to be accelerated to a 2.2pc annual rate for phase four, from 1.74pc/yr currently, but Sandbag has called for the EU to raise it even further, to at least 4.2pc/yr to allow for this mechanism to absorb an expected additional build-up of surplus allowances during phase four caused by coal-fired plant phase-outs across Europe.

But even if this is done, a quicker LRF alone will be unable to pull ETS supply down sufficiently, and adjusting the market cap must be the priority measure, Tabet said.

"Yes, the LRF should be changed, but that changes when the cap changes as well," he said. "Because of the large surplus that the ETS will end phase three with, the LRF cannot solve the problem, because it takes a set amount out every year."

The UK government plans to replace the country's EU ETS participation with a new national ETS, with a view to then linking this scheme directly back to the EU carbon market. And reviewing the EU ETS supply cap in the wake of the UK's planned full departure from the EU could therefore be complicated if emitters in continental Europe are still able to use allowances issued under the UK programme for compliance in the wider market.

But with the viral pandemic having virtually ground to a halt UK political policy making and talks with the EU over a potential ETS link, it may now be ambitious to expect a fully linked domestic ETS scheme to be launched in time for next year.


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24/12/18

US funding bill to allow year-round E15 sales

US funding bill to allow year-round E15 sales

Washington, 17 December (Argus) — A stopgap government funding measure that leaders in the US House of Representatives unveiled late Tuesday would authorize year-round nationwide sales of 15pc ethanol gasoline (E15) and offer short-term biofuel blending relief to some small refiners. The 1,547-page bill, which is set for a vote in the coming days, is needed to avoid a government shutdown that would otherwise begin on Saturday. The bill would fund the government through 14 March and extend key expiring programs, such as agricultural support from the farm bill. It would also provide billions of dollars in disaster relief and pay the full cost of rebuilding the Francis Scott Key bridge in Maryland, which collapsed earlier this year after being hit by a containership. The inclusion of the E15 language, based on a bill by US senator Deb Fischer (R-Nebraska), marks a major win for ethanol producers and farm state lawmakers who have spent years lobbying to permanently allow year-round E15 sales. The bill would also provide short-term relief to some small refiners under the Renewable Fuel Standard that retired renewable identification numbers (RINs) in 2016-18 in cases when their requests for "hardship" waivers remained pending for years. The bill would return some of those RINs to the small refiners and make them eligible for compliance in future years. E15 was historically unavailable year-round because of language in the Clean Air Act that imposes more stringent fuel volatility requirements during summer months. In president-elect Donald Trump's first term, regulators began to allow year-round E15 sales by extending a waiver available for 10pc ethanol gasoline (E10), but a federal court in 2021 struck that down . Federal regulators have issued emergency waivers retaining year-round E15 sales over the last three summers. Enacting the stopgap funding bill would also make it unnecessary for eight states to follow through with a costly gasoline blendstock reformulation — set to begin as early as next summer — they had requested as a way to retain year-round E15 sales in the midcontinent . Oil industry groups last month petitioned EPA to delay the fuel reformulation until after the 2025 summer driving season, citing concerns about inadequate fuel supply and the prospects that a legislative fix would make required infrastructure changes unnecessary. Ethanol groups say the E15 legislative change could pave the way for retailers to more widely offer the high-ethanol fuel blend, which is currently available at 3,400 retail stations and last summer was about 10-30¢/USG cheaper than 10pc ethanol gasoline (E10). Offering the fuel year-round would be "an early Christmas present to American drivers," ethanol industry group Growth Energy chief executive Emily Skor said. House speaker Mike Johnson (R-Louisiana) has faced blowback from many Republicans in his caucus for negotiating such a sprawling bill that has tens of billions of dollars in new spending, after vowing to buck a practice of preparing a "Christmas tree bill" that forces lawmakers to vote on a must-pass bill right before the holidays. Johnson said today the bill remains a "small" funding bill, but that it needed to expand because of "things that were out of our control" such as hurricanes and economic aid for farmers. The Republican backlash could make it more difficult for Johnson to pass the bill, but Democrats are expected to provide broad support. By Payne Williams and Chris Knight Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

UK government weighs ETS, Corsia interaction


24/12/16
24/12/16

UK government weighs ETS, Corsia interaction

London, 16 December (Argus) — The UK government has launched a consultation on how to balance coverage of aviation emissions between its emissions trading scheme (ETS) and the UN's Carbon Offsetting and Reduction Scheme for International Aviation (Corsia). One option being considered by the government is to apply solely the UK ETS to flights leaving the UK to the European Economic Area (EEA) and Switzerland. Corsia would apply to all other international flights from the UK. This would entail no changes to the UK ETS as it is currently structured, and would be "administratively simple to deliver and comply with", the government said. But it would mean not fully implementing Corsia as intended. And as Corsia administration obligations lie with an operator's state, any exemptions to the scheme set by the UK government would only apply to those operators attributed to the UK. The other option under consideration is to apply both the UK ETS and Corsia to these flights, and then compensate operators for the cost of their Corsia compliance, to avoid double-charging for the same emissions. Airlines would be compensated retrospectively following the three-yearly Corsia compliance deadline. This compensation could be financial, or in the form of either UK ETS allowances or reduced UK ETS obligations. The latter would require consideration of UK ETS supply adjustments to account for lower demand from the aviation sector, the government said. Applying both schemes would keep the covered flights fully compliant with Corsia, but could impact supply and prices in the UK ETS depending on how compensation is delivered, the government said. And the need to determine the costs incurred by operators under Corsia could also increase administrative burdens. The consultation is open until 10 February 2025. By Victoria Hatherick Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Canada sets 2035 emissions reduction goal


24/12/13
24/12/13

Canada sets 2035 emissions reduction goal

London, 13 December (Argus) — Canada has set a new 2035 climate goal, aiming to reduce its greenhouse gas emissions by 45-50pc by 2035, from a 2005 baseline. This builds on its 2030 target of a 40-45pc emissions reduction, again from 2005 levels. Canada's emissions had been in 2015 projected to rise by 9pc by 2030, from 2005 levels, "but we are now successfully bending the curve", the Canadian environment and climate change ministry said. The newly-announced target is in line with a pledge Canada made at the UN Cop 29 climate summit last month. Countries that are party to the Paris climate accord must submit new national climate plans by 10 February 2025, to cover a timeframe up to 2035. Canada, the EU, Mexico, Norway and Switzerland committed at Cop 29 to set out new plans with "steep emissions cuts" that are consistent with the global 1.5°C temperature increase limit sought by the Paris Agreement. The plans are known as nationally determined contributions (NDCs). Canada's NDC is being considered by the cabinet, and the country plans to submit it by the deadline, Canadian climate change ambassador Catherine Stewart told Cop 29 delegates on 21 November. Tackling climate change is "both an environmental imperative and an economic opportunity", she added. The target was informed "by the best available science, Indigenous Knowledge, international climate change commitments, consultations with provinces and territories and expert advice", the ministry said. Canada will also "seek feedback on how to help companies take advantage of the economic opportunities that come with building a clean economy" in the near term, it added. Although the plan is not yet available, the ministry said that it will examine the role of carbon removal technologies for the energy transition. "Canadians are increasingly experiencing record-breaking extreme weather," the ministry noted. The country experienced record wildfires in 2023. Carbon emissions from wildfires this year were second only to the "unprecedented" levels in 2023, EU earth-monitoring service Copernicus found this month. Canada has a legally binding target of net zero emissions by 2050. By Georgia Gratton Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

EPA defends 'good neighbor' efficacy


24/12/11
24/12/11

EPA defends 'good neighbor' efficacy

Houston, 11 December (Argus) — The US Environmental Protection Agency (EPA) responded to concerns raised by the US Supreme Court in June by defending the efficacy of the "good neighbor" plan in reducing NOx emissions regardless of the number of participating states. The high court's concerns were over the issue of severability — that is, how effective the good neighbor plan would be in lowering ozone season NOx emissions if only some of the original 23 states participated. In other words, it is the question of whether the emissions limits placed on states as part of the Cross-State Air Pollution Rule (CSAPR) cap-and-trade program under the plan would have changed based on the number of participating states. In a notice published in the Federal Register on Tuesday, EPA rejected the idea that the effectiveness of the good neighbor plan — and as a result, the NOx emissions limits imposed on each state — would wane if the number of participating states changed. Instead, the agency said that its plan is "by design severable by state" because the NOx emissions limits are imposed on individual sources rather than the states themselves. Each participating state's emissions obligations depend on the number of obligated power plants, their emissions and the types of emissions reduction measures they already have in place. As a result, pausing the imposition of tighter NOx limits under the good neighbor plan in certain states does not affect the NOx limits imposed in other participating states, EPA said. In a similar vein, EPA addressed concerns that the larger version of the CSAPR Group 3 seasonal NOx allowance trading program established under the good neighbor plan would become more illiquid if it covered fewer states than planned, which could lead to a smaller supply of allowances and higher prices. Calling those concerns "unjustified", the agency said that states can withdraw their sources from a trading program by submitting their own ozone reduction plans. EPA also cited previous instances from past cross-state ozone programs where the number of participating states has changed, noting that there has been no evidence of allowance shortages. EPA also responded to concerns that it used an inconsistent methodology to determine emissions obligations for each source — including the emissions reduction strategies that could be used and their associated costs. The agency said it used a methodology that was "nearly identical to prior good neighbor rules" and considered NOx reduction technologies that have been in place "for decades throughout the US." The severability issue was raised by the Supreme Court in June, when it paused implementation of the good neighbor plan nationwide. The court majority said that EPA did not provide a sufficient explanation in response to public comments from states that highlighted those concerns — especially because, until the court issued its stay, only 10 states were participating in the good neighbor plan because of lower court stays. But in September, the US Court of Appeals for the DC Circuit allowed EPA to respond to the issue of severability, while it paused related litigation. EPA finalized the "good neighbor" plan last year to help downwind states meet the 2015 federal ozone standards. It imposed more rigorous CSAPR ozone season NOx emissions limits on more than 20 states and called for new NOx limits for industrial sources. Illiquidity has been persistent in the CSAPR market, depressing activity and keeping prices steady for almost a year because of uncertainty surrounding the numerous legal challenges against the plan. The ozone season runs from May-September each year. With plan halted for the time being, EPA has returned to less-stringent seasonal NOx budgets and reshuffled the remaining participating states into the Group 2 and new "expanded" Group 2 markets, leaving the Group 3 market empty. By Ida Balakrishna Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Cop 29 grids, storage pledge signatories released


24/12/11
24/12/11

Cop 29 grids, storage pledge signatories released

London, 11 December (Argus) — The final list of signatories for pledges on expanding energy storage and grid capacity taken at the UN Cop 29 climate summit, was released today, almost four weeks after the commitment was first finalised, with 58 countries out of almost 200 Cop parties taking part. Signatories commit to a collective goal of increasing electricity storage capacity to 1500GW by 2030, a sixfold increase from 2022. Another pledge is to add or refurbish 25mn km of grid infrastructure by 2030, and recognise the need for an additional 65mn km by 2040. Lack of firm, clean power generators to back up intermittent renewables is a major barrier to increasing renewable penetration, while distributed resources require large investments in power grids to transport electricity to consumers. The list of 58 signatory countries includes the so-called troika of Cop host countries the UAE, Azerbaijan and Brazil. The US and all other G7 member states are present, with the exception of France. Also absent among major economies are China and Russia, while Saudi Arabia spoke in support of the pledges during Cop but does not appear on the list of signatories. In comparison, almost 120 countries had signed a pledge to triple global renewable capacity double global energy efficiency by 2030 during the Cop 28 summit in Dubai last year. The grids and storage pledges were one of the centrepiece announcements made by the Azeri host, following on from the calls made in Dubai on renewable capacity and energy efficiency, but also on transitioning away from fossil fuels in energy systems. But divergences on mitigation — actions to cut greenhouse gas emissions — during the summit this year, meant that the completed pledge, as well as any other specific mentions of fuels and energy transition technologies, were not included in final outcome texts. By Rhys Talbot Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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