Environmentals Newsletter | February 2020
EEX welcomes decision for emissions trading scheme for transport and heating and contributes to Parliament hearing
In the previous issue of the Environmental Newsletter, we talked about the political discussion in Germany on extending carbon pricing to sectors not yet covered by the EU ETS. At the end of 2019, a breakthrough was achieved in this discussion with the decision to introduce a national emissions trading scheme for transport and heating. The system will start operating in 2021 with a five-year introduction phase using fixed prices for emissions. A price corridor will follow in 2026.
EEX expressly welcomes the decision to price carbon through a trading scheme. However, we believe a shorter introduction phase and sooner introduction of free price formation would have been possible, and should be discussed in future reviews. At EU level, this approach has proven successful: Since the start of the EU ETS, the system has successfully delivered on all emissions reductions targets set.
Going forward, one of the top priorities for the German national ETS will be enabling a smooth integration of the national scheme into a common European solution, as envisaged by the German government. This is all the more relevant given the strong push for extending the EU ETS to additional sectors, as proposed by the European Commission in its Green Deal Communication in December. For more details on EEX’s evaluation of the national ETS, please see our written statement for the German Parliament’s Hearing on the policy proposal to which EEX’s CEO Peter Reitz contributed as an invited expert.
Nodal Exchange and IncubEx expand environmental suite
Nodal Exchange and IncubEx continued their expansion of the North American environmental products suite in January with the launch of the first physically delivered California Low Carbon Fuel Standard (LCFS) futures and options contracts. The new contracts build on a growing list of Nodal Exchange North American environmental products first launched in November 2018 and expanded throughout 2019. The LCFS contracts provide trading and hedging instruments for commercial firms in the transportation fuels space participating in the burgeoning California program.
The new contracts contributed to volume and open interest milestones reached in Q4 2019. In December, total US carbon and REC volumes topped 100,000 contracts since the first tranche of contracts launched in November 2018. An all-time high was also achieved in Open Interest which exceeded 50,000 contracts in November with Nodal Clear, clearing trades in 20 distinct North American environmental contracts, encompassing 58 commodity codes.
EU ETS Phase 4
Changes in EEX product setup
Auctioning of phase 4 emission allowances is expected to start in Jan 2021. Therefore, operators need to surrender allowances for the last compliance year of phase 3 (2020) by 30 April 2021. During the transition period, phase 3 and 4 allowances will exist in parallel which has implications for EEX´s product setup.
For Jan-April 2021 futures expiries, European Commodity Clearing (ECC) will only accept phase 3 allowances for the fulfilment of delivery obligations (see contract specifications). In the spot market, EEX has planned to separate phase 3 and phase 4 trading for 2021 to offer separate spot deliveries for both phases as of 2021. As a clear cut-off between phase 3 and phase 4 auctions is expected, the auction product setup will not be affected.
European Commission calls for extending EU ETS to additional sectors
In December, Commission President Ursula von der Leyen presented cornerstones for the European Green Deal, a policy package for Europe to achieve carbon neutrality by 2050. Highly relevant for environmental markets, the Green Deal proposal aims at further strengthening the role of the ETS in achieving Europe’s climate policy targets.
Besides the possibility of increasing emissions reduction targets, the proposal also includes extending the EU ETS to new sectors such as maritime, road transport and buildings. Another focus is smart sector integration, taking an economy-wide view on emissions reductions with market price signals coordinating emissions reductions between different sectors. On a global level, the Green Deal aims to increase efforts in climate diplomacy, contributing to ambitious emissions reduction policy globally.
At EEX, we’ll continue to contribute to the political debate around the Green Deal, and also include this in future editions of this newsletter. If you are interested in discussing this topic, please feel free to drop an e-mail to the EEX Political and Regulatory Affairs team (email@example.com).
On the spot
Get in touch with our experts @E-world
From 11th to 13th February 2020, E-world energy & water will take place in Essen – the leading trade fair for the energy industry. It is our pleasure to invite you to our EEX Group booth in hall 3, #436. Our experts are happy to welcome you for a chat on our Emissions offering and to answer your questions. We have a limited contingent of free tickets for E-world. If you are interested, please contact firstname.lastname@example.org.
We will also be present at the Finance & Trading Forum: Timo Schulz and Steffen Löbner from EEX will present the developments in the emissions market at EEX and beyond. Please join on 11th February, 12:45pm in hall 1.
In the framework of the “Speaker’s Corner” at our booth, you will have the chance to meet our partners Christian Worsch and Matthew Coughlan from Trading Technologies who will talk about the TT Masterclass. Please don’t miss the presentation on 11th February, at 1.00pm. We look forward to seeing you at E-world.
Next Event: 3rd-4th March 2020 | Argus Emissions Markets | Lisbon