Reports indicate that the United Nations Environment Program (UNEP) has revised its estimates for the supply of Certified Emission Reductions (CERs). It had previously expected to issue 1.51 billion CERs
The British government confirmed today that only 7% of the European Union Allowances (EUAs) will be auctioned. A previous analysis hypothesized that the government may auction around 10% of the allowances, which is the maximum allowed by EU regulations. The analysis was based on reports that the additional auction might be used instead of a windfall tax to cut some profits from energy firms and use them on the fuel-poor people.
However, the Aug 15 Defra press release confirmed 7% allowances would be auctioned, amounting to about 85 million allowances during phase II (2008-2012). The exact number of allowances available in each auction would be officially announced by the Treasury at least one month prior to the auction date. Around 23 million tons of carbon permits are expected to be auctioned in 2008 although the date of the first auction has not been set yet.
After three months of rising steadily in April, May and June, EU permit prices slumped in July and then recovered somewhat in the first week of August. Bloomberg reports that the prices of EU carbon allowances didn’t change too much this week after the economy contracted and RWE’s decision to purchase more EUAs for its UK operations. EUAs for December reached USD 35.37/metric ton, an increase by 8 cents and CER prices dropped to USD 29.05
The EU economy, which is a global leader in greenhouse gas trading slackened for the first time in its second quarter – the GDP fell by 0.2 per cent as compared to the first quarter as a result of slowing down of major EU countries.
Also, the UK unit of RWE, Germany’s second biggest power generator announced that it will need to purchase more EUAs than expected because it will be using a greater amount of coal than previously thought.
We recently caught up with Dan Lewer, the Co-Founder of the recently launched Carbon Retirement.
So what is your company all about?
Carbon Retirement was founded in 2008 by me and two colleagues. We wanted to offer a service focused on emission reductions. While we could see that there have been lots of interesting innovations in the voluntary market, we felt that it’s often difficult to evaluate the environmental benefits of offsetting projects. Retirement of allowances from EU Emission Trading Scheme – which is what we do – is a process that delivers unambiguous reductions in carbon emissions and we wanted to give everyone the opportunity to do it. We started taking orders in July this year.
How is Carbon Retirement different to other types of offsetting?
Existing types of offsetting work by investing in projects in the developing world that reduce emissions or absorb greenhouse gas from the atmosphere. Typical projects include tree planting and building renewable energy generators. Carbon Retirement is a fundamentally different approach – it works by buying heavy industry’s rights to release carbon dioxide.
What is the EU Emission Trading Scheme?
It’s a system that European governments use to support their commitments to reduce greenhouse gas emissions. It limits carbon dioxide emissions from a range of industries, including power generation, offshore extraction, cement production, iron and steel, paper and pulp and chemical processing. The EU Emission Trading Scheme is the world’s largest cap-and-trade scheme. In a cap-and-trade scheme, an authority allocates a fixed number of pollution permits to the participants. Each permit is a right to release pollution (in the EU Trading Scheme, each is the right to release one tonne of CO2). Permits can be traded between the participants. This creates a market in permits and a market price.
How is the price calculated?
One of our key principles is to be transparent about where our customers’ money goes. The price we charge is based on the market price of EUAs. For customers using our website, we add an admin fee of 10% (which pays the company’s overheads) and a ‘spread fee’ of 5%. The spread fee covers the risk of the price moving upward between the order being made and Carbon Retirement purchasing EUAs. If the price goes down, we reserve the surplus for retirement of further EUAs. This breakdown is published on our website. For organisations that are thinking about retiring more than a couple of tonnes, the price would work differently.
Why does the price of EUAs change?
Fundamentally, the market price of EUAs is determined by the perceived cost of complying with the reduction required by the EU Trading Scheme. During trading, the market participants’ views of the cost of achieving the reduction can change, which is why the EUA price changes. Energy markets are important drivers. When demand for energy is high, demand for EUAs to cover the generation rises too. Burning coal produces particularly large quantities of greenhouse gases, so the price of EUAs is sensitive to demand for coal.
Where do you buy EUAs from?
From an exchange, a market broker or a regulated participant in the market. EUAs are freely tradable between market participants, so the source of an EUA does not affect the environmental benefits of retiring it.
Project-based offsets often have social benefits. Are there any social benefits to taking EUAs out of circulation?
We don’t think we’re fence-sitting here by saying sort of. We facilitate emission reductions in Europe, and we’re dealing with major energy-intensive industries, so there’s less opportunity for helping out communities at the same time.
The social benefits of offsetting projects can be hard to measure and we need to remember that our aim here is to reduce emissions. Globally, emission reduction and mitigation of climate change will have plenty of social benefits. We’re focused on making sure the emission reductions happen.
How does your calculator work?
Our website gives individuals the option of calculating the emissions associated with flights, driving or other activities, and then retiring a corresponding number of allowances.
Once data has been entered into the calculator, we multiply it by emissions factors. For example, if you input that you have driven a certain number of miles in a large petrol car, we multiply that distance by a factor showing the greenhouse gases released for each mile.
The factors and methodology behind the calculator follow the UK government’s guidelines for calculating a carbon footprint.
Where can I go to find out more about climate change and the EU Emission Trading Scheme?
For the trading scheme, I’d recommend the European Commission’s website. There’s also a straightforward overview on Carbon Retirement‘s site. There is a wealth of information about climate change out there. The BBC’s website is a pretty good place to start.
The upward price trend of the EU Emission Trading Scheme (EU ETS) credits or the European Union Allowances (EUAs) over the last three months has been reversed as prices came tumbling down in July. The carbon market to a great extent is contingent upon the fuel prices – the EUA prices rose steadily in April, May and June as more and more power generators were compelled to switch to coal in the face of rising gas prices. Since coal’s carbon emissions are higher than that of gas, an increase in the usage of coal led to a greater demand and hence price of EUAs.
But now with price of gas going down and coal becoming more expensive, the former has become the preferred fuel which has caused EUA prices to go down as it is a cleaner fuel. The rise in their supply as a result of France issuing 130 million EUAs may have also acted as a contributory factor.