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ANALYSIS – Autopsy of a crash: Europe’s carbon collapse said caused by cash call, fuelled by bearish technicals and sentiment
The collapse in European carbon prices over the last two weeks has revived the debate over the impact of speculative traders on the market, as analysts suggest that the record drop in EUAs far outstretches any likely fundamental, long-term impact from the conflict in Ukraine and its knock-on effect on energy prices.
The differing approach to the energy transition by US and European oil was highlighted at an energy industry conference this week, with representatives from Chevron, BP, and Repsol outlining how their companies plan to navigate the shift towards a low carbon global economy by 2050.
The global CO2 price floor set out by the International Monetary Fund (IMF) last year would need to overcome several key obstacles such as scalability and international consensus before implementation, a roundtable heard Wednesday.
Egypt is forging closer ties with US energy majors Chevron and ExxonMobil ahead of its November hosting of COP27 UN climate negotiations, the nation’s energy minister told a conference on Wednesday while speaking of his plans to export clean hydrogen to Europe.
The price crash in Australia’s offset market will likely force many planned sequestration projects to press the pause button, according to analysts, as some market participants accused the government of favouring industry incumbents.
With three weeks left to enter the first round of Japan’s domestic voluntary carbon market, only a handful of energy companies have signed up, a government update showed Wednesday, as manufacturers dominate the scheme’s early backers.
US President Joe Biden said on Tuesday that the nation’s ban on Russian oil and gas would cost Americans even as the administration’s plan to protect consumers from price spikes is well underway, while the plan itself appears to diverge on short and long term objectives with respect to climate targets.
California Low Carbon Fuel Standard (LCFS) prices tumbled to new four year-lows this week as traders noted credit values were converging with those of Oregon’s Clean Fuels Program (OCFP).
California regulator ARB minted just over 200,000 new compliance offsets this week, with the forestry protocol accounting for much of the new issuance, according to agency data published Wednesday.
Carbon prices rallied strongly for a second day as momentum from Tuesday carried over along with incremental buying by options traders, while energy markets backed off amid statements from Russia that indicated it may be moderating its military campaign ambitions in Ukraine.
The EU’s proposed second ETS for buildings and transport along with energy tax reforms may contribute to fighting inequality while lowering emissions, according to a study published on Wednesday that contradicts arguments that the market would place an unbearable cost for the most vulnerable.
A major Pakistan-based blue carbon project has agreed to sell 3 million carbon credits to a group of buyers in the first tranche of units from the world’s biggest mangrove restoration programme.
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BITE-SIZED UPDATES FROM AROUND THE WORLD
Connecting Spain – Spanish PM Pedro Sanchez has called on the EU to finance gas interconnections from Spain to the rest of Europe, suggesting that new infrastructure should also include green gases such as hydrogen, Euractiv reports. Russia’s invasion of Ukraine is already having an impact on the European economy, most notably in the form of a spike in energy prices. The Spanish government insists that it will be one of the least affected by the gas crisis thanks to its extensive network of LNG terminals, and has expressed willingness to facilitate interconnections with other countries in order to allow deliveries out of Spain. However Sanchez insisted that the costs of constructing the necessary infrastructure should be covered from the EU budget. Madrid also supports the idea that the new infrastructure should be designed for “green gas and hydrogen and financed by European budgets”. Spanish citizens are already paying for regasification facilities, Sanchez said. “If we wish to offer Europe our reserve capacities, which are above 60% while the EU’s are at 30%, it is not Spain but Europe that has to fund it,” he explained and voiced his conviction that Brussels would not raise any objections.
Coal for climate – Europe could stop Russian energy imports by using more coal for power production in the short term, said Ottmar Edenhofer, the director of an influential German climate research group (PIK). “Yes, we could cope with enforcing this import ban,” Edenhofer told a German newspaper. “In the short term, we will certainly have to ramp up LNG capacities… and in the electricity sector, we will have to rely more on coal instead of gas in the short term, and in industry we will have to increase energy efficiency as much as possible,” Edenhofer said. The combination of all of these measures would mean German succeeds in maintaining security of supply, he added. Edenhofer also said that Europe’s emission limits will automatically translate into a coal exit in Germany by 2030. “If that is not possible for reasons of supply security, then in the worst case it will be a little later. That’s not a nice development, but you don’t have to slavishly follow phase-out dates as long as the emissions cap is met.” Earlier this week, German chancellor Olaf Scholz firmly rejected the idea that Berlin would cancel energy trading with Russia entirely, arguing that imports are still “essential” for supply security in both Germany and Europe. (Clean Energy Wire)
Return of the frack – The UK has hinted at ending its ban on fracking, as Boris Johnson’s government prepares to unveil a new energy supply strategy in response to the need to diversify its energy supply in the wake of Russia’s invasion of Ukraine. On Tuesday and Wednesday, the government set out plans to gradually reduce reliance on Russian energy imports, and increase domestic production of oil and gas, as well as renewable and nuclear energy supply. A group of Conservative lawmakers are urging the government to relax its stance on fracking in order to stimulate domestic gas production, help plug the supply gap and mitigate against the high prices caused by the repercussions to Russia’s invasion of Ukraine. The Johnson government insists that any changes to its energy policy will not involve abandoning its carbon reduction commitments. In response to a question about fracking from Labour’s energy spokesperson Ed Miliband, Business Secretary Kwasi Kwarteng, who is known to be sceptical about fracking, told parliament that “the government has always been clear that we will take precautionary approach and support shale gas exploration if it can be done in a safe and sustainable way. That remains our position”. Despite some initial enthusiasm about shale gas exploitation under David Cameron’s government, the UK fracking industry has remained small, and expert say it’s unlikely to be able to meet a significant share of national demand. The government introduced a moratorium on fracking since 2018 and the last remaining firm operating in the UK, Cuadrilla, has indicated that it will seal up its remaining wells. (Euractiv)
That’s a scrap – Plans for a 1300-3000MW coal plant in the proposed Musina-Makhado Special Economic Zone (MMSEZ) in South Africa’s Limpopo province have been scrapped, CoalWire reports, with developers now favouring the development of solar capacity. Civil society groups were stunned when the proposed plant and associated coking and steel plant were announced after President Ramaphosa visited China’s President Xi Jinping in 2018. China’s announcement last year that it would not support new coal plants raised hopes the coal power plant would be abandoned. At a briefing last week, the CEO of MMSEZ, Lehlogonolo Masoga, said the coal plant part of the project had been dropped, with a Chinese company now proposing a 1000MW solar project.
Joining up – Japanese oil and gas company Inpex announced on Wednesday it has signed up to the CCS+ Initiative, an effort to develop a methodology for generating voluntary carbon credits from CCS and CCUS projects. The initiative launched last September, with global oil and gas firms working with certifier Verra.
In the driver’s seat – The US EPA said Wednesday it would reinstate California’s authority to set its own clean car standards after the state’s authority was revoked by President Donald Trump’s administration. The EPA’s action, which was widely expected, allows California to once again set its own limits on how much CO2 cars can emit and mandate a certain amount of electric vehicle sales. The agency also reinstated the ability of states to use the California standards instead of the federal standards. In 2019, the Trump administration revoked a Clean Air Act waiver that allowed California to set its own vehicle standards and argued that having one standard for the whole country provided more certainty for the automotive industry. (The Hill)
Third time’s a charm – Energy company Tidewater Renewables on Wednesday announced a third sales agreement with a third investment grade company to sell 10,000 British Columbia Low Carbon Fuel Standard (BC-LCFS) credits at C$490/tonne ($383) for delivery this month. With this transaction, the company said it has now agreed to sales for more than 58% of credits that it will receive through the construction of its 174 mln litre-per-year renewable diesel and renewable hydrogen complex in Prince George, British Columbia, to be received by the commissioning of the complex expected early next year.
Cold conflagration complications – Erratic and generally lessening snowfall in mountains across the American West is complicating controlled winter burns crucial for managing wildfires year-round, the AP reports. Snow cover enables small crews to conduct controlled burns used to reduce forests’ fuel density and thus the explosiveness of firestorms. Climate change, caused mainly by the extraction and combustion of fossil fuels, is supercharging wildfires and shortening and warming winters. The dilemma illustrates how the impacts of climate change can not only compound each other but also hamper efforts to lessen their severity. (Climate Nexus)
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