Luyue Tan’s Post

Interesting update in the carbon market today. The upcoming Carbon Border Adjustment Mechanism (CBAM) is set to impose a 40% carbon tax on UK power generators from 2024. This tax will apply to all forms of electricity, including renewable energy sources. 🇬🇧🇪🇺 The UK and EU Emissions Trading Schemes (ETS) were once linked, a connection now severed following the UK ETS' launch back in January 2021. Today, Energy UK is proposing the re-linking of the two to mitigate these impending costs and maintain trading efficiency between the UK and its largest export partner. To give some perspective on the financial impact, this potential carbon tax could lead to British power generators facing over £500m in carbon taxes, given the recent dip in UK carbon prices in September to below £35 per tonne. #Carbon #Brexit #EmissionsTrading #UK #EU #CBAM Source: https://lnkd.in/eVsWadiC

One of the big issues raised at our panel event on Labour and the EU last week was the barriers to trade and investment in the energy industry erected since Brexit. The EU’s Carbon Border Adjustment Mechanism (CBAM) came up time and again. The CBAM is designed to create a level playing field for EU businesses by charging a tariff on carbon-intensive imports. After Brexit, the UK set up its own carbon price trading scheme outside of the EU’s own scheme (with carbon currently trading at lower prices in the UK) and because the two schemes are not linked, UK exports will be liable to this CBAM. This will add further, significant barriers to UK exports and lead to higher costs for EU consumers. Ironically, it could also mean higher carbon emissions because the EU will be forced to source electricity elsewhere. As one of the industries that Labour is banking on to drive economic growth in the next 10 years, it’s clear that any incoming Keir Starmer government will have to find a solution quickly. If not, businesses and consumers in both the UK and EU will likely have to bear the cost and investment in clean energy infrastructure could be seriously threatened. Report by one of the speakers at our event, Peter Foster from the FT: https://lnkd.in/eXqjq3AY

🌍🚀 EU to reduce EUA auction volume by around 267 million allowances between September 2024 and August 2025, which will be placed in the Market Stability Reserve (MSR). The TNAC indicator plays a pivotal role in the functioning of the MSR of the EU Emissions Trading System (EU-ETS). It determines whether allowances are withdrawn or released from the MSR, impacting the overall carbon market dynamics. 🔄 This marks the first Communication on the TNAC since significant amendments under the ‘Fit for 55’ legislative package and the REPowerEU Regulation in February 2023, as part of the EU’s response to the energy crisis. 📉 Under the MSR Decision, if allowances exceed 1.096 billion, 24% are placed in reserve, reducing the volume of allowances Member States auction. Based on the published TNAC indicator, 266,816,768 allowances will be placed in the MSR from 1 September 2024 to 31 August 2025. ❗ From 2023 onwards, any allowances in the MSR above 400 million are invalid. As per the REPowerEU Regulation, 27 million allowances were allocated to the Innovation Fund. Consequently, 381,744,844 allowances became invalid on 1 January 2024. #ClimateAction #CarbonMarket #EUETS #Sustainability #Fitfor55 #REPowerEU https://lnkd.in/euACFra8

Last week the #Government released figures that show a 49% rise in applications for a heat pump grant in December 2023, compared to the same month in 2022. However progress needs to be faster than this. According to the Climate Change Committee (#CCC), the #UK is not on track to hit the target of 600,000 annual installations by 2028. To do so, #heatpump installations across the UK must increase ten-fold. One of the problems preventing widespread adoption is the running cost. While the Boiler Upgrade Scheme helps reduce the upfront cost of installing a heat pump, the impact of levies on the domestic heating market means that the cost of the electricity used to operate heat pumps puts them at a disadvantage compared to systems that use gas. Great Britain has one of the highest electricity to gas price ratios in #Europe at 3.97. In their latest report the Heat Pump Association (#HPA) point out that a significant contributor to this is the disproportionate application of Environmental and Social Obligations – costs for government energy policies that are recovered through consumer bills. Domestic electricity consumers, bear around 85% of these levies, which means a typical heat pump consumer pays £170 more than an equivalent gas boiler consumer in levy costs each year. The government have announced that they intend to redress this balance but, as this will take considerable time, the HPA have called for a temporary Domestic Heat Pump Tariff Discount to counter the ‘distortion in the domestic heating market caused by levies on #electricitybills, which acts contrary to their wider #decarbonisation goals.’ Craig Dolan, HPA Chair said: ‘The proposed Domestic Heat Pump Tariff Discount strategically bridges the gap between the current situation and the more complex, wider electricity market reform arrangements which whilst necessary will take considerable time. The introduction of a Heat Pump #Tariff Discount will make heat pumps a more compelling financial proposition to consumers, and will drive a significant shift towards a #greener and more #efficientheating landscape.’ The proposal is a discount which will reduce the price of electricity used for domestic heating or hot water to an amount equivalent to exempting that proportion of electricity from levies. Starting at 5p/kWh from 2024-26 then rising to 6p/kWh, the discount is estimated to require a maximum of £533m of discounted costs over three years. The HPA propose that this should be introduced quickly as an interim measure to bridge the gap until wider #electricitymarket reform is completed.

Dear Madam or Sir,   Last week, the EU decided to support CO2-intensive industry, which is subject to levies in EU emissions trading EU ETS, with a total of four billion euros to reduce 60% of its carbon emissions within three years and 90% within 15 years.    In addition, the German Federal Ministry of Economics has announced that Germany intends to have the EU emission allowances that are no longer needed due to the coal phase-out cancelled and therefore not transferred to the Market Stability Reserve (MSR). This would possibly have happened indirectly anyway, as the MSR will retire all allowances above its maximum quantity of 400 million EUAs from this year onwards. The exact amount is not yet known.   EU emission allowances have lost almost 30% since the beginning of this year, carbon credits used for the international aviation industry (CORSIA) have gained 29% after months of decline and voluntary carbon credits based on nature projects also appear to have bottomed out with an increase of 65%.   According to various analysts, the prices of voluntary emissions trading certificates will rise by several hundred and even thousand per cent in the coming years, which is why many funds and investors are already beginning to discover this asset class for themselves. However, good advice on which types of certificates could be among the most promising is essential here.   At the end of the week, EU emission allowances were relatively stable compared to previous weeks, falling by only 2.8%. The trading range of the December 2024 EUA futures was not particularly volatile either, with prices ranging between 55.41 and 59.05 Euro.   From a technical point of view, it would now be logical for the EUA to tackle the path above the EUR 60 mark this week, but in the absence of bullish impetus, a further decline could also be possible; after all, the delivery deadline has now been moved from the end of April to the end of September, which makes the usual bullish phase in the first quarter obsolete due to higher demand. #EUETS #nEHS #BEHG #CO2 #carbon #emissionstrading

What does the Champions League final last night and European Carbon Markets have in common? ⚽️ Good question, but at least focus was not solely on football last night! 😉 The European Commission adopted a communication on the TNAC - the total number of allowances in circulation in the EU Emissions Trading System (EU ETS) and with that the information on either a withdrawal or release of allowances from the MSR! More information below ⬇️ #euets #emissionstrading #carbon

the main structural concern on the #EUETS market should be the ambition on allowances supply and range of activities under the scheme; and also, the recycling of tax collection

Another unintended consequence of #cbam is that export of low carbon energy from the UK to the EU would be hit by tariffs...making the EU's #netzerogoals more difficult to attain. Is (re-)linking the EU Emissions Trading Scheme #euets and the UK Emissions Trading Scheme back on the agenda?

Readers of our Weekly Report from Monday will know we were keeping a close lookout for European Energy Exchange AG's revised EU ETS calendar updating September-December auction volumes 👀 The Annex was released last night and crucially for EUA prices, the European Commission decided not to inject more REPowerEU allowances into 2024 to bridge a funding gap versus their €75/t budget assumption. This might not move the dial much fundamentally, and emissions are falling faster than anticipated, but it has a big impact on trading sentiment. With the cloud of potentially even more supply pressure now lifted, the #euets might just start to feel more balanced through Q3/Q4...(psst EUAs are are up over €2/3% to €71.50/t today...) 📈 Another couple of highlights ➡ 🔹 Sep-Dec 2024 EUA auction volumes will only rise by a marginal 5 Mt/2.5% versus the same period in 2023. 🔹 EEX also released the provisional 2025 auction calendar here https://lnkd.in/eAEemQdb Jan-Aug volumes are up 4 Mt/1% versus the same period in 2024. Sep-Dec 2025 will be revised next summer according to the new TNAC calculation and subsequent MSR withdrawal. 🔹 From 2025 EUAAs will no longer be sold separately from EUAs and are included in the usual Member State volumes. Subscribe to our full analysis at carltoncarbon.co.uk #carbon #carbonmarkets #decarbonisation #netzero