Post-2020 EU ETS - Chemical Industry News & Chemical ... EU ETS Business as usual or a brave new...
Transcript of Post-2020 EU ETS - Chemical Industry News & Chemical ... EU ETS Business as usual or a brave new...
Post-2020 EU ETSBusiness as usual or a brave new world?
ICIS Tschach Solutions customer seminar
11 November 2016 – Milan
ICIS Tschach Solutions is the leading provider for global carbon market analysis
We cover the carbon markets in the EU (our home market), California/Quebec, RGGI, China und international offset markets.
Our products and analysis includes:
• Price forecasting: short-, mid-, und long-term horizon
• Estimated trading activities of compliance companies
• Forecasting of fundamental data, e.g. emissions
• Qualitative analysis, with a focus on policy developments
• Market relevant news from journalists
About ICIS Tschach Solutions
Agenda
09:30-10:00 Registration & coffee
10:00-11:00 Latest market developments Jan Ahrens
11:00-11:30 Coffee break
11:30-12:30 Market impact of the Post-2020review
Philipp Ruf
12:30-14:00 Lunch break
Agenda
14:00-15:30 Panel discussionCurrent market state of play and outlook
Ben Lee (moderator)Manuela OjanCarolina Villalibre CalderonLiv RatheAlexandros Katsiampoulas
15:30-16:00 Coffee break
16:00-17:00 An international perspectiveUS marketsChinese marketsCOP21
Judith SchröterSimon Chen
18:00 End of day drinks
Latest market developments
11 November 2016 – Milan
Jan AhrensBusiness Director Carbon Market Analytics
Agenda
1) State of the EU ETS – Price Developments
2) Our view on the market – the TIM
3) Fundamentals
4) Behaviour
5) Traded Positions
6) Price Forecast
State of the EU ETS:Price Developments
ICIS performance in 2015 so far
Analyst Updates 2015
January 15
February 27
March 24
April 24
May 17
June 7
July 21
August 4
September 8
October 17
Quantity• 164 analyst updates • 11 monthly reports + 5 research reports• 2 full-day seminars• Monthly emissions updates and 4 cap updatesQuality• Short term indicator 59.2% correct, 10.76€/t profit• Mid term forecast
• Q1 2.20€ off (forecast 9.20€/t – realized 7€/t)• Q2 1.65€/t off (forecast 8.90€/t – realized 7.25€/t)• Q3 1.45€/t (forecast 9.60€/t – realized 8.15€/t)• Q4 ?? (forecast 9.50€/t – realised ??)
Price development
0
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Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15
trad
ing
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[m E
UA
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pric
e [€
/tonn
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volume price
Price development
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Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15
trad
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[m E
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pric
e [€
/tonn
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volume price
highest quarterly auction
supply on record
energy complex loses 10%-50% in value
no aviation compliance
double aviation compliance
400m EUAs withheld from auctions 300m EUAs withheld from auctions
Warmest year on record
Price development
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Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15
trad
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[m E
UA
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pric
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volume price Linear (volume) Linear (price)
Our view on carbon markets: the TIM
Carbon markets are special
• Carbon markets are commodity markets, but a carbon allowance is a hybrid between a normal and a financial product
Normal commodity
Emission rights Financial product
Storage costs high only capital costs only capital costs
Transportation costs yes no no
Purchase prior to consumption yes no -
Needed for production yes yes no
The TIM: Behaviour changes the game
Price Forecast
Traded Positions
Behaviour
Fundamentals
The Fundamentals
Price Forecast
Traded Positions
Behaviour
Fundamentals
2015 sees same weather effect like 2014
-35
-30
-25
-20
-15
-10
-5
0
5
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
wea
ther
effe
ct c
ompa
red
to n
orm
in m
illio
n to
nes
(exc
ept h
ydro
)
2014 2015
Price Forecast
Traded Positions
Behaviour
Fundamentals
Power demand up across EU…
• Key countries show growing power demand ytd
• PL 2.0%• IT 2.1%• ES 2.5%• FR 3.5%• GB -0.7%• DE 4.3%
0
10,000
20,000
30,000
40,000
50,000
60,000
Jan Mar May Jul Sep Nov
Power Demand
PL IT ES FR GB DE
Price Forecast
Traded Positions
Behaviour
Fundamentals
Coal & wind fill the gap in Germany
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Jan Mar May Jul Sep Nov
Conventional
Hard Coal Lignite Gas
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Jan Mar May Jul Sep Nov
Low Carbon
Nuke & Hydro Wind
Solar Biomass
Price Forecast
Traded Positions
Behaviour
Fundamentals
Less fuel switch in UK in 2015 <>2014
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Jan Mar May Jul Sep Nov
Low Carbon
Nuke & Hydro Wind Biomass
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Jan Mar May Jul Sep Nov
Conventional
Hard Coal Gas
Price Forecast
Traded Positions
Behaviour
Fundamentals
Industry will recover slowly
60
70
80
90
100
110
120
prod
uctio
n in
dex
Cement & Lime Metals Oil & Gas
Pulp & Paper Ceramics & Glass Other
Price Forecast
Traded Positions
Behaviour
Fundamentals
2015 emissions record low
[in Mt] 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Power&Heat 1,288 1,177 1,194 1,166 1,164 1,113 1,025 1,008 1,065 1,059 1,057 1,062 1,050
- Nordic 46 49 56 44 35 42 35 31 38 37 36 37 35
- Great Britain 191 166 172 156 171 157 131 117 122 119 116 116 106
- Central Europe 431 406 424 405 409 414 383 376 392 387 384 386 382
- Mediterranean 301 262 237 254 258 218 209 219 222 222 224 225 226
- Eastern Europe 319 294 305 307 292 282 267 265 292 295 297 298 300
Industry 832 702 745 738 704 795 790 803 803 802 802 806 811
- Cement & Lime 191 153 154 152 143 141 147 147 152 154 156 159 161
- Metals 207 146 178 177 170 197 198 200 203 205 208 212 215
- Oil & Gas 274 260 262 261 248 262 252 260 251 242 235 231 227
- Pulp & Paper 35 32 34 33 32 31 30 30 30 30 30 30 30
- Ceramics & Glass 34 27 28 28 26 31 31 31 32 32 33 33 33
- Other 90 84 89 87 85 133 132 134 136 138 140 142 144
Aviation - - - - 84 55 56 57 59 60 61 63 64
Sum: 2,120 1,879 1,939 1,904 1,952 1,963 1,871 1,869 1,927 1,921 1,921 1,931 1,925
Price Forecast
Traded Positions
Behaviour
Fundamentals
2015 supply record low
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500
1,000
1,500
2,000
2,500
3,000
3,500
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Allo
wan
ces
in m
illio
n
Allocation Power & Heat Allocation Industry Allocation Aviation
Allocation through NER Auctions NER300 & Innovation Fund
Offsets
Price Forecast
Traded Positions
Behaviour
Fundamentals
System 800m oversupplied in 2020
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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
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Fundamental balance Cumulative fundamental balance
Price Forecast
Traded Positions
Behaviour
Fundamentals
Behaviour
Price Forecast
Traded Positions
Behaviour
Fundamentals
Hedging slowing down slightlyPrice Forecast
Traded Positions
Behaviour
Fundamentals
…But picture not consistentPrice Forecast
Traded Positions
Behaviour
Fundamentals
Utilities use EUA hedge to generate cash-flows
• RWE generated € 1.3bn cash flow from this• 2014 RWE postion was around 146Mt average hedge price was
€8.90 per tonne• But: Open Interest did not show this volume!
The result developed differently than cash flows in part because we have paid for most of the CO2 emission allowances required for 2014 in 2015, whereas we covered our need in 2013 before the end of that year.
“„
RWE Annual Report 2014
Price Forecast
Traded Positions
Behaviour
Fundamentals
Open interest shows awkward pattern
0
20,000
40,000
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80,000
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Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Open Interest of Y+1 March EUA contracts at ICE
2012
2013
2014
Price Forecast
Traded Positions
Behaviour
Fundamentals
Open interest shows awkward pattern
0
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40,000
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80,000
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140,000
160,000
180,000
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Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Open Interest of Y+1 March EUA contracts at ICE
2012
2013
2014
2015
Price Forecast
Traded Positions
Behaviour
Fundamentals
Open interest shows awkward patternPrice Forecast
Traded Positions
Behaviour
Fundamentals
0
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600,000
800,000
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1,600,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2012
2013
2014
2015
TIM demand estimate spot on
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Jan 2012 Jul 2012 Jan 2013 Jul 2013 Jan 2014 Jul 2014 Jan 2015 Jul 2015 Jan 2016
Demand forecast
Price Forecast
Traded Positions
Behaviour
Fundamentals
TIM demand estimate spot on
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
Jan 2012 Jul 2012 Jan 2013 Jul 2013 Jan 2014 Jul 2014 Jan 2015 Jul 2015 Jan 2016
Auctions (Operator) Exchange between compliance players Demand forecast
Price Forecast
Traded Positions
Behaviour
Fundamentals
The bigger market picture
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
Jan 2012 Jul 2012 Jan 2013 Jul 2013 Jan 2014 Jul 2014 Jan 2015 Jul 2015 Jan 2016
Auctions (Operator) Exchange between compliance playersOpen Interest RWE bandDemand forecast
Price Forecast
Traded Positions
Behaviour
Fundamentals
TIM demand estimate spot on
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1,400,000
Jan 2012 Jul 2012 Jan 2013 Jul 2013 Jan 2014 Jul 2014 Jan 2015 Jul 2015 Jan 2016Auctions (Operator) Exchange between compliance playersOpen Interest RWE bandDemand forecast Price
Price Forecast
Traded Positions
Behaviour
Fundamentals
2014 saw game-changing behaviour
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Jan 2014 Apr 2014 Jul 2014 Oct 2014Auctions (Operator) Exchange between compliance playersOpen Interest RWE bandDemand forecast Price
Price Forecast
Traded Positions
Behaviour
Fundamentals
The Traded Positions
Price Forecast
Traded Positions
Behaviour
Fundamentals
System 900m short in 2020
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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
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Fundamental balance Traded balance
Cumulative fundamental balance Cumulative traded balance
Price Forecast
Traded Positions
Behaviour
Fundamentals
The bank is depleted in 2018 – or earlierPrice Forecast
Traded Positions
Behaviour
Fundamentals
-1000
-500
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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Cum
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alan
ce in
mill
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es
Ann
ual B
alan
ce in
mill
ion
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Total Banked Traded balance Cumulative traded balance
The bank is owned by the metals sector
Power9%
Cement17%
Metals53%
Aviation5%
Other16%
Price Forecast
Traded Positions
Behaviour
Fundamentals
H2 2015 Traded positions
• Q3 price rise was not high enough to balance positions• We foresee further gains in rest of year, and a break in January• Current rally fuelled by compliance buying – will be lasting
[In m tonnes]2015 2016
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
Compliance buying -63 -63 -63 -92 -68 -85 -82 -82 -54 -59 -90 -96 -77 -77 -77
Compliance selling 2 2 2 2 5 3 4 4 5 5 5 2 1 1 1
Auctions (EUAs & EUAAs)
57 49 57 64 27 70 66 67 36 63 66 66 66 63 69
Allocation from NER 1 1 1 1 1 1
NER 300
Market impact of strategic reserves
1 2 1 4 6 2 2 1 2 0 2 4 1 1 1
Traded demand -63 -61 -62 -87 -62 -83 -81 -81 -52 -59 -88 -92 -76 -75 -76
Traded supply 60 52 60 67 33 74 71 72 41 70 73 69 69 66 72
Traded balance -3 -9 -3 -21 -29 -10 -10 -9 -11 11 -15 -23 -6 -9 -4
Cumulative traded balance
-101 -110 -113 -134 -164 -173 -183 -193 -204 -193 -208 -230 -237 -246 -250
Price Forecast
Traded Positions
Behaviour
Fundamentals
Price Forecast
Price Forecast
Traded Positions
Behaviour
Fundamentals
Rally to continue through 2016Price Forecast
Traded Positions
Behaviour
Fundamentals
Further price jump after 2018
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pric
e [€
/tonn
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Range Base Average
Price Forecast
Traded Positions
Behaviour
Fundamentals
Coffee Break
11:00 – 11:30
Market impact of the Post-2020 EU ETS proposal
11 November 2016 – Milan
Philipp RufLead Analyst – EU Carbon Markets
Agenda
1) The 4th trading period in the pre-2020 world
2) Mitigation of the CSCF
3) The complete picture
4) The policy
5) Questions
The 4th trading period in the pre-2020 world
The cap
Phase 3
52.40%42.60%
3.08% 1.92%
auctions allocation NER NER 300 innovation fund modernisation fund
Phase 4
55.00%38.00%
2.42%2.58% 2.00%
Allocation rules
• Preliminary allocation based on production baseline and benchmarks
• Allocation baseline Post-2020: average production 2013-2018
• Benchmark: one-off revised calculation of the benchmarks
• CSCF functioning as in 2013-2020
• Carbon leakage: same list as in 2013-2020
Production baseline
60
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prod
uctio
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Cement & Lime Metals Oil & Gas
Pulp & Paper Ceramics & Glass Other
Preliminary allocation (incl. heat)
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preliminary free allocation
The CSCF
0%
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CF
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[m E
UA
s]
allocation use of left-over allocation cut left-over industry cap CSCF
Mitigation of the CSCF
The cap (NER)
• NER in phase 4 not filled with phase 4 allowances
• Breathing NER – starts with approx. 395m in 2021
• Sourced by phase 3 allowances
• 145m left-over allocation
• 250m from MSR stock
Phase 4
55.00%40.42%
2.58% 2.00%
auctions allocation
innovation fund modernisation fund
Increase of max allocation volumes by 375.2m
The cap (NER)
0%
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CS
CF
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ces
[m E
UA
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allocation use of left-over allocation cut left-over industry cap CSCF
Avoidance of left-over volumes
• The allocation procedure in the third trading period could have produced two left-over pots
• As the CSCF was triggered every year, the first pot did not materialise
• The second pot was filled with 145m EUAs which the Commission intends to transfer to the NER for the fourth trading period
preliminary free allocation
limit of free allocation
allocationallocation free of
charge100% CL
80-30% non CL
CSCFpreliminary > limitcompare
preliminary < limit
left-over 1 left-over 2
The first flow back
• Commission proposed to use the first left-over pot in phase 4 to mitigate the impact of the CSCF in later years
Preliminary free allocation
Max. free allocation
surplus
> Max. free allocation
CSCF triggeredPreliminary free
allocation
>
used to mitigate CSCF in next years
Increase of max allocation volumes by 272.3m
The second flow back
• Commission proposed to adjust the allocation with the carbon leakage exposure factor (CLEF) before calculating the CSCF and consequently avoid the second left-over pot completely
preliminary free allocation
allocation100% CL
30% non CL
limit of freeallocation
allocation > limitcompare
allocation < limit
allocation free of charge
CSCF
left-over 1
Decrease of preliminary allocation volumes by 1,003.6m
Flow backs
0%
20%
40%
60%
80%
100%
120%
0
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CS
CF
[%]
allo
wan
ces
[m E
UA
s]
allocation use of left-over allocation cut left-over industry cap CSCF
The benchmark flat rate reduction
• Commission proposes to adjust the benchmark with a yearly flat rate of 1% of the 2007-2008 base period benchmark
period
# of adjustment years
example
base period2007-2008
allocation period2021-2025
2008
2023
100 85100 - 15 years * (100 * 1%)
15 years
decrease of preliminary allocation by 324.1m
The benchmark flat rate reduction
0%
20%
40%
60%
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100%
120%
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1,200
CS
CF
[%]
allo
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ces
[m E
UA
s]
allocation use of left-over allocation cut left-over industry cap CSCF
The two period approach
• In order to use more up to date production and benchmark numbers the Commission proposes to make two allocation period
1st allocation period
2021-2025
2nd allocation period
2025-2030
production baseline
2013-2017
production baseline
2018-2022
benchmark2023
benchmark2028
decrease of preliminary allocation by 34.2m
The two period approach
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[m E
UA
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allocation use of left-over allocation cut left-over industry cap CSCF
The carbon leakage list
• The Commission proposes to slightly reduce the carbon leakage list in the fourth trading period
• It is expected that still around 93% (97% in phase 3) of industrial emissions will be on the carbon leakage list
• Only sector with very low carbon intensity will switch to the non-carbon leakage exposed group
The carbon leakage list
0%
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allo
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ces
[m E
UA
s]
allocation use of left-over allocation cut left-over industry cap CSCF
The benchmark flexibility
• In order to account for different technological progress in the covered sectors, the Commission proposed to use 3 different flat rates to adjust the benchmarks
fluctuation of preliminary allocation by 595.7m
default flat rate1%
improvement rate between 0.5% and 1.5%low flat rate
0.5%improvement rate between < 0.5%high flat rate
1.5%improvement rate between > 1.5%
The benchmark flexibility
0
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ive
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over
of i
ndus
try
cap
[m E
UA
s]
prel
imin
ary
allo
catio
n [m
EU
As]
0.50% 1.00% 1.50%
The low rate
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CS
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allocation use of left-over allocation cut left-over industry cap CSCF
The high rate
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allocation use of left-over allocation cut left-over industry cap CSCF
The complete picture
Additional features
• Breathing NER• Filled by cessation/closures• Depleted by new installations & production increases
• Transitional free allocation• 10 eligible member states• Up to 40% of their auction volume
• Innovation fund• 50m pre-2020 filled by MSR stock• 400m post-2020 sourced from cap
• Modernisation fund• 2% of the cap – approx. 310m• Along with regular auctions
Cumulative fundamental balance
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allo
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cumulative fundamental balance yearly abatement
Cumulative fundamental balance
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MSR cumulative fundamental balance
Price forecast
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35.00
pric
e [€
/tonn
e]
EUA price
The policy
Important stakeholder – Parliament
• ENVI• Ian Duncan, rapporteur ECR
• Ivo Belet, shadow rapporteur EPP
• Jytte Guteland, shadow rapporteur S&D
• Gerben-Jan Gerbrandy, shadow rapporteur ALDE
• ITRE• Frederick Federley, rapporteur ALDE
• Esther de Lange, shadow rapporteur EPP
• Edouard Martin, shadow rapporteur S&D
• Hans-Olaf Henkel, shadow rapporteur ECR
Important stakeholder – Council
• Groups of member states• Green Growth Group (13 members) – BE, DK, EE, ES, FI, FR, DE, IT,
NL, PT, SI, SE, UK
• Visegrad Group (4 core + 2 affiliates) – CZ, HU, PL, SK, BG, RO
• CZ, FR, SK, FR – tiered approach for carbon leakage
• Presidency: LU (H2 '15); NL(H1 '16); SK (H2 '16); MT (H1 '17)
• Single member states• Germany
• France
• UK
• Poland
Discussed topics
• Linear reduction factor – not discussed However the Visegrad group already prepares for a post-COP
discussion about an higher target
• CSCF - key topic
• Carbon leakage list – key topic
• Benchmarks – key topic
• Use of MSR volumes – key topic
• Dynamic allocation – medium topic
• Fixed auction share – medium topic
• Price floor – on the side-lines
Policy timeline in Parliament
Jan Feb Mar Apr
ITRE exchange of views
consideration of draft
amendments
deadline for AM
ENVI public hearingconsideration & deadline for
AM
Plenary
Policy timeline in Parliament
May Jun Sep Nov
ITRE vote in ITRE
ENVI consideration of AM vote in ENVI
Plenary vote in plenary
Questions
Lunch Break
12:30 – 14:00
The compliance viewStakeholder opinion on Post-2020 issues
ICIS Tschach Solutions customer seminar
11 November 2016 – Milan
Panellists
• Moderator• Ben Lee – Lead Reporter Carbon – ICIS
• Panellists• Manuela Ojan – Climate Protection Manager – Italcementi Group• Carolina Villalibre Calderon – Commodities Derivatives Trader –
Repsol• Liv Rathe – Director – Norsk Hydro Ltd• Alexandros Katsiampoulas – Environment, Quality & Sustainable
Development Manager – TITAN Cement
Coffee Break
15:30 – 16:00
An international perspective
ICIS Tschach Solutions customer seminar
11 November 2016 – Milan
US Markets
Judith SchröterLead Analyst – US Carbon & Global Offsets
How will the post-2020 discussions impact California’s cap-and-trade? (1)
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Tra
ding
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umes
CC
A p
rice
in $
CCA Price Developments
Trading Volume Price Price Floor Auction Clearing Price
Source: ICE and ARB
How will the post-2020 discussions impact California’s cap-and-trade? (2)
• Market is oversupplied significantly through 2020
• Discussion on the post-2020 framework include:
• 40% below 1990 levels target• REDD addition to offset
program• Clean Power Plan
• Complimentary mechanism• RPS• LCFS
-
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How will the post-2020 discussions impact California’s cap-and-trade? (3)
2030 target: 40% below 1990
2050 target: 80% below 1990
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RGGI: An example of a successful program redesign (1)
• Small ETS in the North-East• Yearly Emissions: 87m short tons• Only the power sector covered• Close to no free allocation
2005 2013
RGGI: An example of a successful program redesign (2)
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Chinese Markets
Simon ChenAnalyst – Chinese Carbon Markets
Agenda
• ICIS exposure in China carbon markets
• Pilot ETSs
• National ETS
Agenda
• ICIS exposure in China carbon markets
• Pilot ETSs
• National ETS
Our exposure in Chinese carbon markets
• 6 members in China carbon team• We cover:
• Compliance companies – updates and forecast, educating and consulting etc.
• Non-compliance players – updates and forecast, risk management, marketing opps etc.
• Local and National DRCs – policy design and commenting
• In H1 2016, we plan to:• Update price forecasts for pilots and NETS• Keep a close eye on any development of NETS• develop CCER pricing for NETS• Host the 1st China Carbon Expo with partners (under discussion
now)
Agenda
• ICIS exposure in China carbon markets
• Pilot ETSs
• National ETS
Allowances price movement in pilot ETS
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CCERs available for 2015 compliance
Shenzhen Guangdong Beijing Shanghai Tianjin Hubei Chongqing
Total issuance (by 2016 H1) (estimated)
6.1 – 6.6m 5.8 – 6.8m 3.9 – 4.4m 4.8 – 5.4m 3.9 – 4.4m 1.6 – 1.9m 17.1 – 18.3m
SurrenderedCCERs for 2014 compliance
0.9m (primarily pre-CDMCCERs)
0.4m 0.06m 0.5m 0.3m (out of which, 50%
were ineligible CCERs)
0.6m Unknown – but expected to be
close to 0
CCERsavailable for 2015 compliance
5.0 – 5.5m 4.7 – 5.7m 3.3 – 3.8m 3.7 – 4.3m 2.6 – 3.1m 1.0 – 1.3m 14.3 – 15.5m
• Above figures are based on issued volumes or MR volumes (if the final approved MR has not been published)
• Note: When calculating the CCERs available for 2015 compliance, there will be some double-counting of the CCERs surrendered for 2014 compliance
Current challenges in pilot ETS• Illiquid market
• No derivatives
• Uncertainties• Delay in compliance deadline• Ad-hoc auctions• Adjustment of allowances
• Unstable rules and regulations• Ever-changing rules (e.g. CCERs)
Agenda
• ICIS exposure in China carbon markets
• Pilot ETSs
• National ETS
NETS Highlights
• Note: The information provided in the table above are gathered through various documents, announcements and speeches released by the NDRC.
China's National ETS OverviewRegulator National Development and Reform Commission
Registry National Registry System (incl. creation, transfer and cancellation of carbon allowances and offsets)
Exchanges Target to have a total of 7 – 10 exchanges; the existing 7 pilot exchanges might possibly remain.
Emissions coverage
Initial phase to include: Power, Steel, Non-ferrous metals, Building Materials, Chemical, Paper-making and Aviation. Compliance companies already enrolled in the Chinese pilot scheme may be included regardless of whether they are from the listed sectors to include more sectors in later phases.
Geographic coverage
Not announced. Most probably the 7 existing pilot regions and other more developed pilot regions
Emissions threshold
≥26,000 tonnes emissions annually
Allowances allocation
Will adopt free allocation and auctions; NDRC sets caps for each enrolled provinces and the local DRCs will allocate allowances to the compliance companies. Detailed allowances allocation mechanism not yet announced.
Offset Chinese Certified Emissions Reduction (CCER)
Penalty Not announced.
LinkageNDRC will explore the possibility of linking the National ETS with other ETSs around the world at an appropriate time in the future.
Concens/challenges: pilot allowances
• No clear instructions from the NDRC yet
• Slightly less than one year back, we hold the view that there is a high possibility that the pilot allowances cannot be banked into the National ETS.
• Currently, we see an increased possibility that the pilot allowances can be banked, but at a ‘discount/exchange’ rate. Full banking of excess pilot
allowances might be undesirable for the national market – excess pilot allowances might exceed 100m tonnes.
• Possible ways to transit:• Allow compliance companies to use their excess pilot allowances in the first / second
year (probably up to 5% - 10%)• ‘Reward’ pilot ETS DRCs with slightly more free allocation in the first year (probably up
to 5% - 10%)
• Possible buybacks from Hubei and Guangdong DRCs – but we’ll not bet our
money on that
Concerns/challenges: allocation policy• Allocation methods
• Benchmarking – Power, Cement and Chemicals• Grandfathering (historical carbon intensity) – Steel, Cogeneration,
Aviation
• ICIS’s evaluation
• Benchmarks for Power quite stringent – more stringent than Guangdong and close to Shanghai
• Therefore, we expect Power sector to be short• Industry as a whole to be long (but not as severe as in EU ETS
cause reduction in production is taken into consideration in the allocation)
Chinese National Emissions Allowances Price forecast (CNY)
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COP21
Judith SchröterLead Analyst – US Carbon & Global Offsets
COP 21 – who, when, and why?
COP 21Conference of
the Parties or the UNFCCC
31 Aug - 4 Sep ADP
Bonn, Germany
Ad Hoc Working Group on the Durban Platform for Enhanced Action (ADP)
Mandate → develop another instrument with legal force to be completed COP 21 and be implemented from 2020
CMP 11Meeting of the
Parties of the KP
19 - 23 OctADP
Bonn, Germany
30 Nov - 11 DecCOP & CMPParis, France
Targets (INDCs)
• 149 countries, 86% global emissions• 2.7°C warming by 2100
Countries CO2 reduction Target CO2 intensity target
China Peak by 2030 at latest 60% to 65% by 2030 vs 2005
USA 26-28 % by 2025 vs 2005
EU 40% by 2030 vs 1990
India 33% to 35% by 2030 vs 2005
Russia 6-11% by 2030 vs 1990
South Korea 37% by 2030 vs BAU
State of play (1/2)
Draft agreement• Purpose: Global average temperature at or below 2 °C• Mitigation
• National targets: INDCs, communication period unclear (147 countries, 87% of global emissions
• Global target: language unclear• Parties may cooperate on mitigation activities implementation
• Compliance: mechanism to be facilitative, non-punitive, non-adversarial, non-judicial
• Climate finance: Scaled up from [USD 100bn/year] from 2020
New ADP co-chair text20 pages (86 before)
5 Oct
Draft agreement: 9 pages
Draft decision: 11 pages
State of play (2/2)
Draft decision
• Discuss how to continue existing mechanism of the UNFCCC
• Allow transfer of mitigation outcomes (+ domestic reduction)
• Promotes voluntary cancellation of emission reductions incl. CERs
• Develop mechanism based on CDM for use towards obligations
New ADP co-chair text20 pages (86 before)
5 Oct
Draft agreement: 9 pages
Draft decision: 11 pages
Questions
Contact
ICIS
Tschach Solutions GmbH
Steinhäuserstrasse 9
76135 Karlsruhe / Germany
Direct: +49 (0) 721 205 9629 00
http://analytics.icis.com