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EUA

Update on European Union Emissions Trading Scheme Trialogue discussions in progress The ‘Fit for 55’ legislative package proposed by the European Commission in the summer of 2021 is likely to be the catalyst for the most meaningful reform of the European Union Emissions Trading Scheme since the programme began in 2005. A lot of progress had been made in getting to a final agreement, with the European Parliament having concluded its debates before the summer recess and the Council of European Union (chaired by Czech Republic) finalising its position around the same time. However, discussions between the three groups (The European Commission, Council of European Union and European Parliament) on ‘Fit for 55’ legislation has been slowed by concurrent REPowerEU discussions. REPowerEU is the European Commission’s plan to make Europe independent from Russian fossil fuels well before 2030, in light of Russia's invasion of Ukraine. Both REPowerEU and Fit for 55 should promote energy transition and decarbonisation and the therefore are pace and ambition in one initiative will have implications on the other. Trialogue discussions on the ‘Fit for 55’ legislation between The European Commission, Council of European Union and European Parliament are currently taking place. There is a lot of hope that these discussion will be concluded before Christmas, while the current chair of the Council is in place (Czech Republic). What’s been agreed and what’s next? So far a number of things have been agreed : 1. A lower threshold for the cost containment mechanism (Article 29a) 2. No restriction of market access to “speculators” Provisional agreement has been reached on : 1. 40% emission reduction by 2030 from 2005 in Effort Sharing Regulation (non-ETS sectors) 2. Provisional agreement on starting the phase-in of shipping into the ETS in 2024-26, later than the 2023 as originally proposed 3. Phasing out free EUAs for the aviation industry by 25% in 2024 and 50% in 2025 and completely by 2026. A total of 5 million allowances that were allotted to aviation companies will now go into an innovation fund. Only intra-EU aviation is covered by the EU ETS. In 2026, the EU will access if the International Civil Aviation Organization’s CORSIA is doing a good enough job at decarbonising the international aviation industry. If it isn’t they will seek to include international flights into the EU ETS. Tentative agenda for remaining discussions : 1. December 14th 2022: Carbon Border Adjustment Mechanism 2. December 16th 2022: Revision of key formulas including overall cap, linear reduction factor and expansion of ETS to buildings and road transportation 3. December 19th: Social Climate Fund Swift agreements will be useful As we approach the final days of the calendar year, open interest and trading volumes on EUA futures tend to decline. Important news flow on days with lower-than-normal liquidity could have an outsized effect on price. Thus, it will be prudent for the trialogues to conclude swiftly. Moreover, it will be convenient to conclude before the (rotating) Presidency of Council of Europe switches to Sweden on January 1st 2023. With center-right Prime Minister Ulf Kristersson dependent on the far-right, Euroskeptic Sweden Democrats (SD) for his parliamentary mandate, some fear EU legislative processes could be slowed. However, if key agreements are made before the switch, it will be difficult for the Council to back out in the New Year. Article 29a reform Under Article 29a of the current Directive, if for more than six consecutive months, the allowance price is more than three times the average price of allowances during the two preceding years, the European Commission (EC) shall convene a meeting of the Climate Change Committee. As a second condition, the EC Climate Change Committee has to determine that the excessive price fluctuations do not correspond to market fundamentals. If both conditions are met, Article 29a is triggered, whereby the EC can release an appropriate number of Allowances from the Market Stability Reserve. To date, this has never happened. The reform agreed is to lower the threshold to 2.4 times the average price of allowances during the two preceding years rather than 3x. This is less bearish for EUA prices than lowering to 2x as we were projecting in our last blog - Suspension of EU ETS unlikely. The current Article 29a doesn’t specify how many EAUs need to be released. The EC would need to decide on an appropriate number given the scale and circumstances of the misalignment with fundamentals. The reformed Article will involve 75 million allowances released automatically. While still less than the 100 million discussed earlier this year, removing the ‘second condition’ of judging if the price movement is out of line with fundamentals may in fact drive more instability in EUA pricing. Had this reform been in place in 2021-2022, it still would not have triggered the release of additional EUAs, during this period of heightened price volatility, although it would have come close. If implemented in 2018, Article 29a would have likely been triggered. Are we there yet? Not everything in the Fit for 55 package has been agreed and even what has been a greed is not yet law. Any provisional agreement reached in trilogues is informal and has therefore to be approved by the formal procedures applicable within the Council and Parliament. In Parliament, the text of the provisional agreement has to be approved by a vote in committee after which it is confirmed in plenary.
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by aneekaguptaWTE
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Progress on ‘Fit for 55’ breathes life into EUA marketOn Friday 28 October, EU carbon emission allowances (EUA) had extended their largest weekly gain in 5 years following a strong rally over the preceding six days1. This happened during a week when the first ‘Fit for 55’ proposal was agreed2. The EU has strengthened targets for CO2 emissions from road transportation. To understand this price action, it is important to reflect on what happened in the EUA market between August and October. EUA prices fell sharply in August after reaching an all-time high of EUR98.42/MT3. Two main things triggered the collapse in prices. First, Poland’s Prime Minister called for a suspension of the EU’s Emission Trading System (ETS) to deal with the stress of rising prices. Poland’s state-owned electricity company even launched an advertising campaign blaming the ETS for the country’s high energy prices. Second, there had been much talk about reforming Article 29a of the EU Emissions Trading Scheme (ETS) Directive – the mechanism designed to reduce instability caused by price spikes. Despite the high price volatility of EUAs and the sharp price increases in the past two years, the clauses under Article 29a have never been invoked. In September we outlined how the past sequence of events, that were weighing on EUA prices, were unlikely to materialise further. The suspension of ETS had neither any legal basis nor any political will. And the triggering of Article 29a is an ambiguous process and it wasn’t certain that its thresholds were likely to be hit. Even if we disregard the technicalities of Article 29a, the principle remains that the ETS Market Stability Reserve was designed to reduce the historic oversupply of EUAs and used only to counter any major shocks to the system. As a result, we took the view that markets had overreacted even though the fundamentals for EUA remained strong. In the blog, we also suggested that post summer, we expect to see more momentum on the ‘Fit for 55’ legislative front. As per the press release by European Council from 27 October 2022: The Council and the European Parliament reached a provisional political agreement on stricter CO2 emission performance standards for new cars and vans. The goal of the agreement is to move towards zero-emission mobility. Pending a formal adoption, the co-legislators agreed to a: 55% CO2 emission reduction target for new cars and 50% for new vans by 2030 compared to 2021 levels 100% CO2 emission reduction target for both new cars and vans by 2035. The proposal to revise the CO2 emissions performance standards for cars and vans is part of the ‘Fit for 55’ package. Presented by the European Commission on 14 July 2021, the package aims to enable the EU to reduce its net greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels and to achieve climate neutrality in 2050. At WisdomTree, we believe this development sends a strong signal to markets that the EU is committed to the ‘Fit for 55’ package. As rules covering other sectors not currently legislated under the ETS (like buildings and shipping) are unveiled, we may see more positive price momentum in EUAs. This does not rule out volatility in the short-term. Europe is still faced with a precarious energy situation over winter. Oil and natural gas prices can have an indirect effect on EUAs. For example, if energy supplies are ample and industrial activity continues at or close to normal levels, demand for EUAs will also stay at normal levels. If activity needs to be curtailed, emissions will automatically fall and so will the demand for EUAs. In the medium term however, Europe’s focus remains on the energy transition. REpowerEU – the policy proposal to wean off Russian energy dependency – also focuses on speeding up the energy transition away from hydrocarbons in general. In short, the energy shock is unlikely to derail EU ETS from being the cornerstone of EU’s climate policy. The recent rally in EUA prices appears to be a realisation of this from markets. 1 Source: Bloomberg. 3 On 19 August 2022, source: Bloomberg.
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by aneekaguptaWTE
Time to go long on Eurasia Mining Company PLC.Now is a great opportunity to enter a long position into EURASIA MINING COMPANY PLC (EUA). I have been in this company since January at 3p per share with an average share price of 18p per share. I see nothing now but a green light to really ramp up on my long positions. The company is currently under negotiations in a possible buy out with suspicions of a bid per share of 75p being declined. The deal is suspected to be in the final stages. Level 2 data suggests that the current price action and volume is ahead of a possible news announcement or leak with over 1,689,984 shares exchanged in the last hour of trading.
LSE:EUALong
by KraaZ_
200% spike on 14x average volume!Eurasia Mining has spiked over 200% on almost 14x average volume. This is a huge move with a lot of momentum behind it. That being said, there is likely a lot of profit taking to come. The market has strong potential resistance at 1980-2005. Will it be strong enough to trigger a reversal? Maybe. It is the confluence of two 1.618 Fibonacci projections. If the market reaches that level this week, as it is close to doing, it will also coincide with a 0.75 Speed fan trend line. This stock has a history of being spikey. Watch out, it can fall through the floor very quickly.
LSE:EUAShort
by Quantium_Research
Carbon EU ETS EUA Carbon as a market has been following very closely technical signs in 2018. European Commision introduced Market Stability Reserve (MSR) a policy that aims to reduce the surplus of carbon allowances we are currently seeing in this market. This analysis argues that EUAs tested the 21.40 three times but failed to breach it. That said, the triple top formation never occurred and therefore an inverse head and shoulders have provided the necessary upward pressure. Technically this market could test in the short-term its recent high. Fundamentally, MSR kicks in next year and traders will be looking very closely to see how this instrument will affect this market. The demand of those allowances will play the most important role. All these are just my thoughts and observations for education purposes. This is not an investment advice. Happy to hear yours. L
ELong
by Avernus