Europes EEX targets global cap and trade carbon markets

24 July 2020 | Trading

Group looks to capitalize on EU experience

31 cap and trade systems in the world

ETS players 'taking the long view' to 2030

European commodities exchange group EEX sees expansion potential in its carbon offering over the next five years as cap and trade markets are designed around the world, EEX's Chief Executive Peter Reitz said July 16.

In a wide-ranging interview with S&P Global Platts, Reitz said the exchange had been involved in the EU emissions market for over 15 years, running the auctioning platform for 27 European states.

"We know how to build the infrastructure and the communities to make these markets work," he said, without naming target regions.

Expertise was needed "more and more around the world as countries or regions build cap and trade mechanisms that give a price to CO2. We're going to different parts of the world and helping build cap and trade mechanisms, designing them in a way that can be connected later on," Reitz said.

Ultimately the long term goal was to support creation of a global price for carbon, he said.

"That is why we're engaged not only in Europe, but also via a broad set of products in the US [on Nodal Exchange], and now around the world," he said.

31 cap and trade initiatives

There were 61 carbon pricing initiatives around the world by the end of 2019, including 31 carbon cap-and-trade systems and 30 carbon taxes, according to a World Bank report released in May.

The growth in the number of carbon pricing initiatives is largely taking place in the Americas, the World Bank said.

"Mostly driven by Canada's federal carbon pricing approach, 2019 saw a flurry of subnational initiatives emerge across the provinces and territories, complemented by the federal carbon pricing backstop policies. This year also marked the start of the pilot phase of Mexico's national carbon market, representing the first emissions trading system (ETS) in Latin America," the World Bank said.

Regional carbon markets in the US also expanded to include new states in 2019, while Switzerland linked its system to the EU Emissions Trading System, and the UK announced plans for a domestic carbon market after 2020.

ETS long view

In Europe, meanwhile, carbon market participants were clearly taking a long view during the current period, Reitz said.

At the beginning of the coronavirus crisis CO2 prices dropped below Eur15/mt as participants sold allowances to gain liquidity, but since then EUA prices had more than doubled.

EU Allowance futures contracts for December 2020 delivery on the ICE Futures Europe exchange traded in a range of Eur28.27/mt to Eur29.33/mt July 16, just off a 14-year intra-day high of Eur30.80/mt July 13.

"What you have to keep in mind is that these certificates are bankable all the way through to 2030 and the end of the current trading period," he said.

"A lot of participants are looking long term, they take seriously the discussions at European level to increase CO2 reduction targets. That's a major driver," he said.

The European Commission wants the EU to cut its CO2 emissions by 50%-55% from 1990 levels by 2030, up from the current 40% binding target, as part of efforts to move away from fossil fuels and make the EU climate neutral by 2050.

The EC plans to propose more precise target figures in September as an amendment to its draft EU climate law that seeks to make the 2050 goal binding.

A more ambitious 2030 target implies tougher annual caps under the EU Emissions Trading System out to 2030, which covers 45% of the EU's economy-wide emissions, as well as stronger policies for the non-traded sectors.

In its latest EU ETS market outlook July 13, Platts Analytics said that while the supply-demand situation in 2020 was "incredibly poor, we also expect it to improve over the next several years. The Market Stability Reserve, reduced Phase IV supply, and the expectation of more ambitious GHG reduction targets will all help tighten market balances," it said.

Source: S&P Global