Environmentals Newsletter | April 2021
Strong uptake at first NZ Emissions Trading Scheme auction following launch by NZX and EEX
The New Zealand’s Exchange (NZX) and the European Energy Exchange (EEX) launched the first auction for the New Zealand Emissions Trading Scheme (NZ ETS) last month – with strong uptake across the key sectors of the New Zealand economy.
New Zealand’s Minister for Climate Change, Hon. James Shaw, formally opened the first bidding window at 9.00 am (NZT) by ringing the bell at the NZX Centre in Wellington – ushering in auctions under the NZ ETS, one of the New Zealand Government’s main tools for meeting domestic and international climate policy targets.
NZX Chief Executive, Mark Peterson, says a particular success of the first auction was the level of interest and direct participation from major industries such as manufacturing and transport, along with the forestry sector and private interests.
Peter Reitz, CEO of EEX, adds: "It has been a great team effort and an excellent co-operation with NZX. The NZ ETS is first and foremost a domestic policy instrument. However, I hope our collaboration can also serve as an example and inspiration for the future development and integration of carbon markets.”
The NZ ETS auctions will take place in a quarterly cycle in 2021 within a 3-hour time window from 9.00 am (NZDT) until 12.00 pm. During this year, a total of 19 million NZU will be auctioned under the New Zealand Emissions Trading Scheme.
> Read full press release
> Watch the full video [YouTube Link]
March 2021 - Highlights
The good market developments of the recent months are continuing in March in the majority of the segments of the EEX Emissions market. While the primary auctions volumes increased by 16% MoM mainly due to more auction days in March, the secondary spot market benefitted from an uplift effect caused by the upcoming compliance deadline, resulting in a 36% volume increase.
The recently launched futures-style-margin emissions options could not reach February volumes but still range on levels over four times higher than last year’s monthly average.
In the segment of the emissions futures market, the March volumes repeated the great results of February. With a slight increase by 4%, March levels range not only around 70% above the monthly average of 2020, it also reached the monthly average volumes of the record year 2018. These great results are also reflected in the net open interest figures that amount to roughly 220 mt. In 2020, this amount was only reached in June, over three months later than this year. On top of that, we have seen a new all-time-high in the daily number of active participants in our Emissions futures order book in March, which rounds up a fantastic overall support of our clients.
Since CERs will lose their eligibility in the EU ETS in phase 4, compliance entities will be able to use CERs for the last time for their 2020 obligations at the end of April this year. EEX will keep offering CER spot trading until this time, which has been welcomed by numerous clients and is reflected in the March activities.
With a view on Aviation Allowances, we would like to make you aware of the change in phase 4 of the EU ETS that allows aviation operators and stationary allowances to surrender aviation allowances in order to meet the compliance obligations.
EEX awarded contract as sales platform for fuel emissions trading in Germany
On 15th March 2021, European Energy Exchange AG (EEX) was awarded the contract for the sale of fuel emission allowances in the national Emissions Trading Scheme (nETS) by the German Federal Environment Agency. As fuel emissions trading has been in force in Germany since 1st January 2021, the instrument will set a CO2 price for the heat and transport sectors at a national level for the first time. Indeed, these sectors have not been covered by the European Emissions Trading Scheme (EU ETS).
All CO2-emitting fuels placed on the market, in particular petrol, diesel, heating oil, liquefied petroleum gas, natural gas and coal, are included in the nETS. The obligated parties under the nETS are those who place fuels on the market, for example natural gas suppliers or companies in the mineral oil industry.
Concretely, a fixed-price phase is initially planned until 2025, during which emission certificates will be issued at a legally fixed – and annually increasing – price. Up to and including 2025, the sale of such emission certificates will take place via EEX at these fixed prices. From 2026 onwards, the certificates will then no longer be sold at the fixed price, but will move into an auction process.
Building Markets Together 2021
As the global trading landscape has seen considerable changes over the past decade, what will shape and influence the commodity markets of the future?
On 15th April, EEX Group will host its first digital conference “Building Markets Together”. Expert panel discussions, Q&A sessions, trade talks and live demos from our partners will underline how EEX Group, as a global commodity exchange, aims at facing challenges of our time in collaboration with its customers and partners.
Make sure to register and book your free place for our dedicated environmental session:
3.15 pm CET | Carbon Pricing in new sectors: National Fuel ETS in Germany
- National Fuel ETS: Sell-off process from 2021
- Need and perspectives for a secondary market?
- Carbon Pricing on European Level? Which way forward?
Confirmed Speakers: Robert Gersdorf (EEX), Expert Political & Regulatory Affairs | Manuel Möller (EEX), Head of Business Development Environmental Markets | Christian Fleischer (EEX), Head of Sales Environmentals
For the full agenda and registration details, just click on the link below.
> Secure your free place for Building Markets Together
Market Update
North American environmental markets on Nodal Exchange continued to grow with record daily, monthly and quarterly volumes and open interest posted in Q1
North American environmental contract volumes on Nodal in Q1 totaled 58,065 contracts, up 54% from 37,698 contracts a year earlier. Open interest in the product group ended the quarter at 123,200 contracts, up 89% from 65,063 contracts in Q1 2020.
The quarter was highlighted by a record volume month in February with 29,580 contracts traded, up 284% from 7,690 contracts in February 2020. Nodal, which partnered with IncubEx, also surpassed 250,000 total contracts traded since the launch of environmental markets in December 2018 in February and posted a record daily volume day in its North American environmental product suite with 6,575 contracts on February 26.
Volumes in Q1 across the 56 REC futures and options contracts offered on Nodal rose to 54,421 contracts, up 111.3% from 25,748 in Q1 2020, with several volume highlights including:
- Pennsylvania Solar Alternative Energy Certificates' Q1 volume was 12,400, up from zero trades in Q1 2020
- Texas Compliance Wind RECs from CRS Eligible Listed Facilities (front half of the year and back half) futures volume totaled 6,706, up 82.5% from 3,673 in Q1 2020
- New Jersey Solar REC volume was 6,100, up 335.7% from 1,400 in Q1 2020
Open Interest at the end of Q1 across the REC contracts offered on Nodal rose to a record 117,463 contracts, up 113.4% from 50,318 in Q1 2020.
- PJM REC open interest at the end of Q1 was 22,100, up 35.5% from 16,300 at the end of Q1 2020
- Pennsylvania Solar Alternative Energy Certificates' Q1 open interest was 20,600, up more than 200-fold from 100 contracts at the end of Q1 2020
- Texas CRS Wind open interest totaled 13,303, up 336.4% from 3,048 at the end of Q1 2020
- New Jersey Solar REC open interest rose to 16,612, up 117.1% from 7,650 at the end of Q1 2020
Other notables for Q1 included: the first trade in February of Texas CRS solar futures and first delivery. In March, Nodal moved to build liquidity further out the curve with new vintages on 11 listed products.
Interest in North American environmental markets is expected to continue to grow, especially as US states set more aggressive renewable portfolio standard targets and more companies push to meet "100% renewable" or "net zero" goals.