CP Daily: Thursday March 10, 2022

Published 01:49 on March 11, 2022  /  Last updated at 04:43 on March 11, 2022  /  Newsletters  /  No Comments

A daily summary of our news plus bite-sized updates from around the world.

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TOP STORY

EU nations strike limited CBAM deal, leaked draft suggests

EU nations have agreed a unified stance on a proposed Carbon Border Adjustment Mechanism (CBAM), a leaked draft seen by Carbon Pulse on Thursday suggested, following efforts by France to prioritise the issue in under its six-month EU presidency.

INTERNATIONAL

Smooth operators: Oil and gas firms’ bid to stay relevant in energy transition

The oil and gas industry converged on Houston this week for its flagship CERA Week event in a much-changed environment compared to the last time the conference was held in person in 2019.

ASIA PACIFIC

South Korea faces energy, climate makeover after presidential election

Conservative candidate Yoon Suk-yeol won South Korea’s tight presidential election, which likely means changes to its climate policy and emissions trading settings given Yoon’s support of nuclear power and desire to slow down the planned coal phase-out.

AMERICAS

NA Markets: CCAs, RGAs roar back from multi-month lows to end week nearly flat

California Carbon Allowances (CCAs) remained tied at the hip to EU carbon and equities this week as prices recovered from a massive early-week plunge, while RGGI Allowances (RGAs) experienced a similar, albeit more muted movement around the programme’s Q1 auction.

Amid US Supreme Court threat, EPA plans multi-pronged approach to tackling power CO2 output

The US EPA is seeking to integrate its regulations on power generators, aiming to ensure the sector delivers GHG emissions indirectly in the event that the Supreme Court rules the agency cannot act in a direct way, Administrator Michael Regan said Thursday.

Soaring energy prices mean US carbon pricing likely to remain at state level

High fossil fuel prices could entail a shift in policy design necessary to reach US climate targets, though current federal inaction on CO2 pricing will likely continue giving ground to expanding state-led efforts, a virtual event heard Thursday.

EMEA

Euro Markets: EUA rally stretches into third day after strong auction as energy drops on Russian supply assurances

EUAs extended their rally into a third day despite early losses after the daily auction saw the highest volume of bidding in a year, while energy prices were lower as Russia reiterated its intention to maintain gas supplies despite reports of unsuccessful negotiations to agree a ceasefire.

EU lawmakers rubber-stamp environmental programme to meet 2030 climate objectives

European members of parliament on Thursday gave their approval to the EU’s environment programme that will commit the bloc’s climate objectives on a 2030 time horizon to law, including a binding framework for the phaseout of fossil fuel subsidies as well as a 55% emissions reduction goal.

Drinks-maker Diageo fined £1.2 mln by Scottish govt for EU ETS breaches

Drinks-maker Diageo has been fined £1.2 million by the Scottish government for breaches relating to the EU ETS.

AVIATION

Investor group says airlines should drop offsets to align with 1.5C warming target

Airlines should phase out the use of carbon offsets from their climate strategies and only count removal-based units towards any carbon neutral or net zero claims, an investor engagement initiative said Thursday.

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CONFERENCES

North American Carbon World (NACW) 2022 – Apr. 6-8 in Anaheim, California – presented by the Climate Action Reserve: Learn, collaborate, and network on carbon markets and climate policy at NACW, North America’s largest carbon event. NACW features comprehensive and up-to-date information, key thought leaders advancing innovative climate solutions, and the best networking opportunities with colleagues in the business, government, nonprofit, and academic sectors. NACW will dive into the status and future of North American carbon markets, climate policies, innovative solutions, natural climate solutions, net zero pledges and beyond, transportation and LCFS markets. www.nacwconference.com

City Week 2022: Resetting Priorities for a Better Future – Apr. 25-27 at London Guildhall: Now in its 12th year, City Week is the premier gathering of the international financial services community. Organised in partnership with the UK Government and leading City institutions, City Week brings together industry leaders and policy makers from around the globe to consider the future of global financial markets. Each day will address a specific theme, with Day 1 focussing on “Meeting the climate change challenge – the role of financial services in achieving net zero”. www.cityweekuk.com

Reuters Events: Global Energy Transition 2022 – June 14-15 in New York City: The conference unites CEOs and changemakers from the energy, industrial, and government ecosystems to shed light on the defining issue of our time, and help companies meet a uniquely difficult challenge. Over two days and five critical themes, we will define the future of energy, inspire a decade of action, and prepare the sector for challenges still to come, with diverse voices from around the world bringing passion and expertise to deliver a new path forward. Find out more by visiting the website today: https://bit.ly/35H7cgb

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BITE-SIZED UPDATES FROM AROUND THE WORLD

Carbon Pulse has teamed up with CME Group to provide its clients with regular updates on the global carbon markets. Check out these briefs for the latest insights on pressing trends and events impacting markets, published every other week. Registration required

INTERNATIONAL

Out of the club – As the international community seeks to cut off Russia from the global economy, there are moves to isolate Moscow diplomatically in the climate space, Climate Home reports. The Umbrella Group, a negotiating bloc of non-EU developed countries including Australia, Canada, Japan, Iceland, Israel, New Zealand, Norway, Ukraine and the US, announced that Russia and Belarus are no longer welcome. On behalf of the group, an Australian official told a meeting of lead climate negotiators convened by the UK and Egypt on Wednesday, that “in light of Russia’s invasion of Ukraine and the actions of Belarus to enable this, members of the Umbrella Group are not coordinating with Russia and Belarus at this time”. “We condemn in the strongest possible terms Russia’s unprovoked and unjustified invasion, in clear violation of international law, including the UN Charter. Russia’s invasion undermines the very foundations of the rule-based international order,” the group said in a short statement shared with the meeting. Kazakhstan, another member of the group with close ties to Russia, did not endorse the position.

EMEA

End game – European Commission President Ursula von der Leyen is seeking the political green light from EU leaders to propose in May measures to phase out dependencies on Russian fossil fuels by 2027, Bloomberg reports. Von der Leyen outlined her plan to heads of government at their informal summit in Versailles on Thursday, according to a post on Twitter. The Commission earlier this week published an overhauled energy strategy aiming to cut reliance on Moscow following President Vladimir Putin’s invasion of Ukraine. Russia is the EU’s biggest natural gas supplier, accounting for more than 40% of imports. The EU also relies on the country for the biggest share of its coal and oil import needs. Under the commission’s energy strategy, named RePowerEU, the bloc could replace nearly two-thirds of gas imports from Moscow already this year through actions such as tapping new supply sources, boosting renewables and accelerating energy savings.  In mid-May, the EU executive arm also wants to lay out options to improve the electricity market design “in view of structural change towards decarbonisation of the energy mix.” According to von der Leyen’s plan, at the end of March the Commission will present options for emergency measures to limit the contagion effect of gas costs in electricity prices, including temporary price limits. It will also design a plan to refill Europe’s depleted gas reserves for next winter and propose new measures for EU gas storage policy.

Serious strain – Russia’s invasion of Ukraine is leading to increasing uncertainty and concern in Germany’s business sector, with 70% of industrial companies now expecting serious energy price strain, according to a survey by the German Economic Institute (IW). In its survey of 200 companies during the first week of the war, the IW found that 62% of them expect either large or very large burdens as a result of increased energy prices. Among industrial firms, that figure was 70%. The escalation of the conflict has also led to growing concern among German companies about gas supply with a third of companies expecting problems due to a shortage. Many companies not only use gas as an energy source, but also as a raw material in the chemical and pharmaceutical industries. Accordingly, 37% of industrial companies expect more frequent burdens due to the lack of gas. Companies also expressed concern over supply chain disruptions in Ukraine, where software providers and automotive parts suppliers have been forced to stop work. As a result, 31% of total companies, and 39% in the industrial sector, expect cancelled deliveries to become a burden. Separately, the German Association of Local Utilities (VKU) is calling for government assistance in the form of financial security, namely emergency and bridging loans from state development banks, as well as energy tax cuts. “In addition to large suppliers and energy traders, municipal utilities are also systemically important and must therefore be jointly protected against imbalances due to short-term price fluctuations,” the VKU said in a statement. Securing liquidity is essential so that “higher prices for raw materials can be paid, default obligations can be assumed and futures trading transactions can be secured with collateral” under adverse circumstances. (Clean Energy Wire)

TTF troubles – The Greek government has unveiled a six-point plan aimed at stabilising Europe’s wholesale gas market, in a letter sent by its government to European Commission president Ursula von der Leyen, Dow Jones reports. The proposed plan, outlined by Prime Minister Krriakos Mitsotakis, included a price cap on Dutch TTF gas prices and daily price guardrails to limit volatility. It also wants a fixed-price setting as an emergency reaction to potential Russian supply cuts, as well as a profit cap on gross margins. In wholesale electricity markets, for example, this can be a 5% cap based on market regulators monitoring production costs and production assets. The plan’s aim is to curb energy price hikes that weigh on consumer bills as well as address the disruption of supply caused by the war in Ukraine. “Natural gas has become a major factor in the power struggle between Russia and the EU,” Mitsotakis said. “This spiral of speculation and politicised price hikes must stop. When markets cease to function normally, it is the obligation of governments and regulators to step in and ensure the market can reset and rebalance.” Athens also seeks a time-limited option to only allow trading with physical delivery to avoid market manipulation, and wants to increase natural gas market liquidity by market coupling between the EU, the US and Asia. On Tuesday, the European Commission had said it plans to store more gas and add more renewable energy sources as part of a plan to reduce the bloc’s dependence on Russian imports by two-thirds by the end of the year. According to the EU, the plan could end members’ dependency from Russian gas entirely before 2030.

AMERICAS

On schedule – The Canadian federal government rejected a proposal by New Brunswick Premier Blaine Higgs to suspend the provincial carbon tax for three months to help consumers cope with soaring gas prices, CBC reports. Higgs said a “deferral” of the carbon tax would take 11 cents off the cost of a litre of gasoline, arguing that the current price spike brought on by the Russian invasion of Ukraine will achieve the same objective. Federal Intergovernmental Affairs Minister Dominic LeBlanc said the federal carbon pricing standard will stay the same and increase as scheduled at the end of this month. The current CO2 tax rate on gasoline is 8.8 cents a litre (C$40/tCO2) but it’s due to increase to 11 cents (C$50/tonne) on Apr. 1. Last year Higgs used some of the remaining C$127 mln in carbon tax revenue to pay for a small income tax cut.

Not on schedule– Canadian PM Justin Trudeau’s plan to cut GHGs from the oil and gas sector will not be ready until late this year or early 2023, environment minister Steven Guilbeault told Reuters, leaving a major hole in an emissions reduction plan due to be released by the federal government this month. Oil and gas production is Canada’s highest-emitting sector and a main focus of Trudeau’s goal of cutting GHGs by 40% to 45% by 2030 compared to 2005 levels. Guilbeault said Ottawa needs more time to consult with industry, unions, environmental groups, and the provinces to sort out what mechanism it will use to cap and then cut oil and gas emissions. The government may outline the emissions reduction plan on Mar. 29.

Charest day – Former Quebec premier Jean Charest appeared Calgary on Thursday to formally launch his campaign for the Conservative Party of Canada (CPC) leadership, a bid to re-entering federal politics for the first time in more than 20 years. Charest served as Quebec’s premier from 2003 to 2012, spearheading the inauguration of the province’s cap-and-trade programme. Pierre Poilievre, a high-profile Ottawa-area MP who was the first to declare his candidacy for the Conservative leadership, has been dismissing Charest as favouring policies like the federal carbon price — something many party members detest. Candidates have until Apr. 19 to declare their candidacy to lead the official opposition to the Canadian government. (National Post)

Freaky flows – A major exchange-traded fund tracking carbon credits that didn’t see a single outflow during the first year of its life is suddenly seeing large sums of cash slosh in and out. For eight days starting late February, the $1.3 bln KraneShares Global Carbon Strategy ETF (ticker KRBN) posted a big inflow one day and a similar or even-larger outflow the next. The pattern finally broke in the latest data with a $52 million withdrawal, the second exit in a row, Bloomberg reports. An inflow followed by an outflow is not an uncommon event in ETFs, and is often the hallmark of a tax-friendly trade known as a “heartbeat.” But those tend to occur in isolation, with months between each. “The action in this ETF has occurred over an extended period of time, which is more of an anomaly,” said Todd Rosenbluth, head of ETF and mutual fund research at CFRA. “I don’t know what to make of it.” One key factor may be the discount of the fund to the value of its assets. The ETF trades in New York, while many of its assets trade in Europe, meaning gaps frequently emerge between the two. Recently the fund has been trading at a discount. When this happens, an intermediary known as an authorised participant typically buys up shares of the ETF and then redeems them for assets in the fund – this appears as an outflow. It doesn’t immediately explain the inflows, however.

ASIA PACIFIC

Sticking their heads out – So far, 25 major Australian companies have agreed to participate in the government’s new Corporate Emissions Reduction Transparency (CERT) pilot scheme for climate reporting. Under the scheme, which is for entities that emit above 50,000 tCO2e/year, participants will report in a set format their voluntary climate targets and their progress towards meeting those targets. The report will include data on offset purchases. The first batch of companies that have signed up includes several major energy and industrial companies, such as AGL, Alinta, Fletcher Building, Fortescue Metals, Santos, and Woodside, as well as most of the nation’s big banks.

Majeure flooding – Australia’s Port Kembla Coal Terminal has declared a force majeure after destructive floods disrupted loading, curbing supply to a global market already grappling with a shortage of cargoes. The export terminal, located 72 km south of Sydney, ceased operations Tuesday after excessive rainfall caused significant slumping along the stockyard, according to a document seen by Bloomberg. The disruptions will further tighten the global coal market as importers scramble to replace shipments from Russia after its invasion of Ukraine.

Step by step – Teijin Lielsort Korea, a subsidiary of Japanese chemicals company Teijin, has announced a net zero plan for its production facilities. It has signed an agreement with major power producer KEPCO to buy renewables for 30% of its energy consumption, and will achieve the rest through buying carbon credits from Japanese trading house Mitsui. It has so far bought all the offsets it needs for 2022, and expects to make further purchases in the future, the company said, but did not provide further details.

VOLUNTARY

Janeiro dinheiro – Rio de Janeiro will gain a stock exchange for the purchase and sale of carbon credits and sustainable assets related to energy, climate, and forests. Claudio Castro, governor of the state of Rio de Janeiro, on Tuesday signed a protocol of intentions with Nasdaq and the Global Environmental Asset Platform to take the first steps towards the implementation of a trading platform. In the next 90 days, a working group will be created to discuss the proposed measures and a pilot experiment. After this evaluation time, a Brazilian subsidiary of Nasdaq will be installed in Rio de Janeiro. The so-called Environmental Assets Exchange is expected to be up and running in the second half of the year.

Robust removals – Tech giant Microsoft on Thursday published its 2021 Environmental Sustainability Report, saying that is has successfully contracted to remove 2.5 MtCO2 in Fiscal Years 2021 and 2022 through carbon credit purchases. The company said this includes 1.4 Mt contracted in FY 2021 and 1.1 Mt in FY 2022, putting it on track to meet its goal of 1.5 Mt in FY22. Microsoft last January disclosed all of its removal-focused offset purchases, and launched a new request for proposals in July, seeking high-quality nature-based and engineered CO2 removal credits. Microsoft has pledged to be carbon negative by 2030.

Neu kids on the block – Swiss cleantech company neustark this week announced that it has developed the first carbon-removal technology to secure certification from offset programme Gold Standard, hailing the move as a major step forward for the emerging carbon removal technology market. The new technology sees about 10kg of captured CO2 stored in a cubic metre of concrete, which reduces the need for new cement in the concrete, avoiding a further 20kg of new CO2 emissions. According to its current order status, the company will have the removal capacity of 10,000 tonnes of CO2 a year by the end of 2022. (BusinessGreen)

AND FINALLY…

No, money back! – As gas prices climbed to over $4/gal ($15/L) in the US and oil traded at highs of $130 per barrel this week amid war in Europe, a new report from UK-based think-tank Common Wealth found that the top five oil and gas producers in the US are getting a wildly good deal from the federal government: while they rake in massive profits, their tax burden remains shockingly low. Since the Paris Agreement was signed in 2015, top producers have, on average, gotten money back from the Internal Revenue Service. Analysing data from financial databases Bloomberg Terminal, Compustat, and Thomson Reuters Eikon, researchers Sandy Hagar and Joseph Baines found that according to Compustat and corporate 10-K filings required by the Securities and Exchange Commission, ConocoPhillips, Chevron, ExxonMobil, Hess Corp., and Devon Energy altogether got $1.95 bln back in domestic taxes between 2015 and 2022. The same companies paid $77.2 bln to foreign governments over the same period. While paying negative taxes to the US government, these companies also delivered their investors $201.4 bln in dividends and share buybacks, or $40.3 bln on average – well above the $15.3 billion average for companies listed on the S&P 500. This year, pre-tax profits for ConocoPhillips, Chevron, ExxonMobil, Hess Corp. and Devon Energy are expected to increase by 42.7%, 38.5%, 28.6%, 56.9% and 44.6% respectively, as compared to last year. (New Republic)

Bonus edition… We are here to pump you upIn a Feb. 27 Substack piece, US climate activist Bill McKibben argued that US President Joe Biden should invoke the Defense Production Act, an emergency national defense law, to get American manufacturers to begin rapidly scaling up electric heat pumps to ship to Europe and counteract Russian President Vladimir Putin’s fossil fuel power in the region. McKibben compared the effort to the program established by the Lend-Lease Act of 1941, in which the US sent critical supplies to Allied nations that had been invaded by Germany in World War II. About a week later, as White House aides were gearing up to announce a ban on US imports of Russian oil, they discussed this very idea, The Washington Post reported, citing three people with knowledge of the matter who spoke on the condition of anonymity to discuss private deliberations. As of Wednesday, White House aides were still seriously studying the idea, although they recognised that it could go through the congressional appropriations process.

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