Global Environmentals Newsletter | October 2020
Leipzig, London, 29 October 2020
A joint bid by EEX and New Zealand Exchange (NZX) has been selected to develop and operate the managed auction service for the New Zealand Emissions Trading Scheme (NZ ETS) following a public procurement process by the New Zealand Ministry for the Environment. The NZ ETS has been subject to comprehensive reform lately: From next year on, it will have an absolute cap on emissions for the first time, and regular auctioning of New Zealand Units (NZUs) will be introduced.
The development of the managed auction service by NZX/EEX has already begun and is expected to be completed by the first scheduled auction in March 2021. While NZX will host and operate all auction-related processes, EEX will contribute the bidding system and provide expert support for the development of the NZ ETS auctions. The auctions will have a sealed bid, single-round, uniformly priced format – similar to the EU ETS auctions. For 2021, a total volume of 19 million NZUs is available, spread evenly over quarterly auctions. The auctions will be open for participation to all New Zealand Emissions Trading Register account holders.
If you have any questions or would like to discuss this further, please get in touch with our expert Manuel Möller.
In September, the market conditions were characterized by very high volatility, continuing the developments since July. In those turbulent times, also driven by Brexit uncertainty, prices bounced between levels of all-time-high (~31€/t) and the better part of the pre-corona prices (25-26€/t). EUAs were settled for the first time above €30 in 2020 on 14 September (€30.47) after the European Commission revealed stricter climate targets than expected. In fact, it was the highest settlement price ever so far in the history of the EU ETS. The front-year futures have only settled above €30 twice before – back in 2006 on 18 and 19 April – when they ended at €30.45 on both days. On 15 September, the Dec20s reached the September high at €30.78, only 2 Cents below the July high and 22 Cents below the all-time high. However, buyers failed again to break the 2020 high as well as the all-time high and thus, this major resistance area still prevails. EUA prices have been falling since then.
The primary auction volumes came back to regular levels after the half-volume summer period in August. The quantity on offer for the rest of the year is roughly 50% higher than last year which is in particular due to the resumption of UK sales including withheld volumes from 2019 coupled with fewer withdrawals by the MSR. The drastically increased auction volume weighs short-term on EUA prices.
Although the September volumes in EEX Emission Options decreased and remain on rather low levels, the Futures market could win in two aspects: trading volumes and active clients. The latter jumped by +34% above last year’s average and the trading volume of 38 mt in Futures orderbook trading is setting another all-time high. Total trading volumes in September were above the yearly average in all products (spot, future, options) with future trading volumes being the highest so far in 2020.
Nodal Exchange and IncubEx announced the upcoming launch of eight new Renewable Identification Number (RIN) futures and options contracts.
Pending regulatory review, Nodal will list the first-ever physically delivered futures contracts on D3, D4, D5 and D6 RIN markets on November 17, 2020. Complementary RIN options contracts will also be listed that day on the four futures contracts. The new contracts mark the latest expansion of the renewable fuels products group on Nodal, which offers the largest suite of listed environmental contracts in the world.
“The RIN market is the largest renewable fuels credit market and has proven effective in its goal to lower carbon emissions across the transportation sector,” said Nathan Clark, Managing Director at IncubEx. “These new products offer RIN participants a cost-efficient way to hedge price risk in the market.”
The European Energy Exchange (EEX) is the leading energy exchange in Europe which develops, operates and connects secure, liquid and transparent markets for energy and related products. As part of EEX Group, a global commodity exchange, EEX offers contracts on power, gas and emission allowances as well as freight and agricultural products. EEX also provides registry services as well as auctions for Guarantees of Origin.
EEX is part of Deutsche Börse Group.
EEX and IncubEx jointly develop and expand global environmental and commodity markets. The IncubEx team has considerable experience in the derivatives industry with specific expertise in exchange-traded products and services.