Review 2020: Environmental markets post increases on spot and derivatives
2020 has been another exciting year for us in the commodity business, but especially in environmental markets. During the year, we have again experienced significant volatility in the EU ETS market, which has resulted in more trading opportunities. The price of the most relevant Front Dec EUA benchmark contract grew significantly by more than 30% year-on-year in this still overall difficult Covid-19 environment. The overall market volume [Jan-Dec YOY: Volume +12%] and open interest in the EU ETS was also positive.
On the EEX side, we also experienced growing volumes in all segments. In terms of net open interest EEX was able to further expand its market share to 22% in the futures market which was largely driven by the increased activity in our order book (futures volume +30%). We are also very proud of the fact that EEX was again selected by the EU Commission as preferred partner for the operation of the Common Auction Platform in the recent tender procedure. Furthermore, the EEX contract on the auctioning of emission allowances on behalf of the Polish government was extended in December.
EEX Group was also able to drive forward many positive developments globally. For example, EEX was selected by the authorities in New Zealand, together with the New Zealand Exchange (NZX), as a partner for the development and implementation of the NZ ETS primary auctions. Nodal, together with our partner IncubEx, further extended its product range by launching several new physical delivered contracts in the North American market.
We would like to thank our trading participants and partners for their trust and are looking forward to the exciting opportunities in 2021 for our customers. So please continue to follow EEX via the Environmental Markets Newsletter for any updates and we’d be happy to receive your feedback and opinion in EEX´s “Carbon Community" LinkedIn group which was launched last year.
We look forward to hearing from you!
Your Emissions team
EU ETS: EEX publishes 2021 Auction Calendar for Emission Allowances (EUA) and Aviation Allowances (EUAA)
EEX is proud to continue auctioning in 2021 and kick-off with the auctions on Friday, 29th January.
In late 2020, EEX was reappointed by the European Commission (Press Release). Furthermore the contract on the auctioning of emission allowances on behalf of the Republic of Poland was extended. As the UK has left the European Union, EEX is now the auction platform which covers the entire auction volume under the EU ETS.
Primary market auctions on EEX are conducted under the following three contracts:
- On the Common Auction Platform (CAP3) on behalf of 25 EU Member States, three EEA EFTA states as well as for the Innovation Fund and the Modernisation Fund on Mondays, Tuesdays and Thursdays
- On behalf of the Republic of Poland on Wednesdays
- On behalf of the Federal Republic of Germany on Fridays
For 2021 a total of 223 auctions for ~ 711 million general allowances and seven auctions for ~ 4 million aviation allowances is planned.
Details can be found in the Press Release and the auction calendar.
Product offering: EEX to launch Futures Style Margin Options on Power, Gas and Emissions Futures
In December, EEX launched Futures Style Margin Options on Emissions Futures. The contract design is in line with the already available equity style options (e.g. available expiries, early expiry). EEX will also introduce the new options on power and natural gas futures, which will be available as of 15 February 2021. All Futures Style Margin Options will be available for order book trading and trade registration. Futures Style Margin Options are a more liquidity-preserving options product as the up-front premium payment will be broken down into daily margin payments, similar to futures products, and the remaining premium will be finally paid at expiration. This makes it easier for portfolio and risk managers to evaluate their daily exposure.
Steffen Koehler, Chief Operating Officer of EEX, comments: “With the offering of the new options, we are able to provide our customers with not only a more liquidity-preserving options product but also with an option product whose payment structure is more aligned with our futures products and enables our customers to trade our wide range of products more efficiently.”
The clearing for the Futures Style Margin Options will be provided by European Commodity Clearing (ECC), the clearing house of EEX.
> Read the full press release here
NZ ETS: Designing primary market auctions for New Zealand
Earlier this month, our partner NZX held the second workshop re the upcoming NZ ETS auctions. In their educational webinar series they covered everything you need to know ahead of the first auction, including an introduction to auctioning and how to prepare, as well a tour of the auction system and guidance on how to register.
In case you missed the webinars or would like to watch the session again, please follow the links:
Webinar 1 [YouTube Link]
Webinar 2 [YouTube Link]
Register for NZ ETS Auctions
As participants begin preparing for registration, NZX created a video [YouTube Link] to demonstrate the key steps for which customers need to follow ahead of registering:
- Ensure you've completed the notification process in the NZ ETS Register before starting registration
- Submit a statutory declaration form to NZX
- Login to the auction platform with your RealMe account
- Provide proof to NZX of bank account details
Simulated auctions on 27-28 January
In cooperation with NZX we are running simulated auctions from 27 to 28 January 2021. This is a chance for you to experience the auctions and test your own processes. To register your organisation please contact email@example.com.
NorthAmerica: Environmental markets on Nodal Exchange finished the final months of 2020 with a flourish with plenty to be positive about in 2021
November was highlighted by the launch of the first-ever physically delivered Renewable Identification Numbers (RINs) futures and options along with seven new Renewable Energy Certificate (REC) contracts. The RINs are based on the US Environmental Protection Agency's nationwide program for ethanol and other biofuels and complement the first physically delivered California Low Carbon Fuel Standard credit futures contract launched in January 2020 and Oregon Clean Fuels Program contracts which debuted in June 2020. Nodal now offers 12 futures and options renewable fuels contracts on six different markets.
REC trading across multiple US state markets continued throughout 2020 and hit several milestones along the way. The additional REC contracts launched in November expanded the product sector to more than 56 REC futures and options contracts on 32 different markets in the US. In early January, Nodal's REC market share represented about 15% of total open interest.
Texas Compliance RECs from CRS Listed Facilities (front-half and back-half) futures continued to shine among Nodal's REC markets, topping 10,000 contracts of open interest in December 2020. Total volume traded since Texas CRS futures were launched in December 2019 was almost 20,000 contracts, or 20 million MWh, enough electricity to power 4 million homes annually. The contract delivers wind-based RECs from facilities which are registered with CRS and its Green-e renewable energy certification program, and is only offered on Nodal. The Texas CRS REC futures contract is the most successful voluntary-based futures contract ever listed and options were added as well in November, along with new Texas CRS solar REC contracts.
In early 2021, open interest across all Nodal environmental contracts neared 95,000 contracts, representing almost 10% market share for the US environmental markets. Even as Joe Biden takes the reins as US president, states continue to drive the growth of environmental markets in the US. More renewable fuels markets are being considered and studied, with Wisconsin and Minnesota as the latest states to examine low carbon fuel standard markets. Massachusetts, Rhode Island, Connecticut, and the District of Columbia also agreed in December 2020 to move forward with a renewable fuels market and clean fuel program called the Transportation and Climate Initiative (TCI). Eight other states are also considering joining TCI. And Canada approved a draft of the Clean Fuel Standard in December 2020, with the regulations for a renewable fuels program to begin in December 2022.
Meanwhile, Virginia officially joined the Regional Greenhouse Gas Initiative (RGGI) in January, making it the 11th state to join the carbon market for utilities. Pennsylvania is also pursuing membership in RGGI in 2022. In short, all of these developments point to a North American market that is showing signs of momentum and indications of further expansion. Nodal Exchange and its partner IncubEx will continue to work together to grow these markets and meet customer's needs.