post-2020 eu ets - chemical industry news & chemical ... eu ets business as usual or a brave new...

Post-2020 EU ETSBusiness as usual or a brave new world?

ICIS Tschach Solutions customer seminar

11 November 2016 – Milan

ICIS Tschach Solutions is the leading provider for global carbon market analysis

We cover the carbon markets in the EU (our home market), California/Quebec, RGGI, China und international offset markets.

Our products and analysis includes:

• Price forecasting: short-, mid-, und long-term horizon

• Estimated trading activities of compliance companies

• Forecasting of fundamental data, e.g. emissions

• Qualitative analysis, with a focus on policy developments

• Market relevant news from journalists

About ICIS Tschach Solutions

Agenda

09:30-10:00 Registration & coffee

10:00-11:00 Latest market developments Jan Ahrens

11:00-11:30 Coffee break

11:30-12:30 Market impact of the Post-2020review

Philipp Ruf

12:30-14:00 Lunch break

Agenda

14:00-15:30 Panel discussionCurrent market state of play and outlook

Ben Lee (moderator)Manuela OjanCarolina Villalibre CalderonLiv RatheAlexandros Katsiampoulas

15:30-16:00 Coffee break

16:00-17:00 An international perspectiveUS marketsChinese marketsCOP21

Judith SchröterSimon Chen

18:00 End of day drinks

Latest market developments


Jan AhrensBusiness Director Carbon Market Analytics

Agenda

1) State of the EU ETS – Price Developments

2) Our view on the market – the TIM

3) Fundamentals

4) Behaviour

5) Traded Positions

6) Price Forecast

State of the EU ETS:Price Developments

ICIS performance in 2015 so far

Analyst Updates 2015

January 15

February 27

March 24

April 24

May 17

June 7

July 21

August 4

September 8

October 17

Quantity• 164 analyst updates • 11 monthly reports + 5 research reports• 2 full-day seminars• Monthly emissions updates and 4 cap updatesQuality• Short term indicator 59.2% correct, 10.76€/t profit• Mid term forecast

• Q1 2.20€ off (forecast 9.20€/t – realized 7€/t)• Q2 1.65€/t off (forecast 8.90€/t – realized 7.25€/t)• Q3 1.45€/t (forecast 9.60€/t – realized 8.15€/t)• Q4 ?? (forecast 9.50€/t – realised ??)

Price development

0

10

20

30

40

50

60

70

80

0.00

2.00

4.00

6.00

8.00

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Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15

trad

ing

volu

mes

[m E

UA

s]

pric

e [€

/tonn

e]

volume price

Price development

0

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20

30

40

50

60

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80

0.00

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trad

ing

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mes

[m E

UA

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pric

e [€

/tonn

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volume price

highest quarterly auction

supply on record

energy complex loses 10%-50% in value

no aviation compliance

double aviation compliance

400m EUAs withheld from auctions 300m EUAs withheld from auctions

Warmest year on record

Price development

0

10

20

30

40

50

60

70

80

0.00

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trad

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volume price Linear (volume) Linear (price)

Our view on carbon markets: the TIM

Carbon markets are special

• Carbon markets are commodity markets, but a carbon allowance is a hybrid between a normal and a financial product

Normal commodity

Emission rights Financial product

Storage costs high only capital costs only capital costs

Transportation costs yes no no

Purchase prior to consumption yes no -

Needed for production yes yes no

The TIM: Behaviour changes the game

Price Forecast

Traded Positions

Behaviour

Fundamentals

The Fundamentals

Price Forecast

Traded Positions

Behaviour

Fundamentals

2015 sees same weather effect like 2014

-35

-30

-25

-20

-15

-10

-5

0

5

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

wea

ther

effe

ct c

ompa

red

to n

orm

in m

illio

n to

nes

(exc

ept h

ydro

)

2014 2015

Price Forecast

Traded Positions

Behaviour

Fundamentals

Power demand up across EU…

• Key countries show growing power demand ytd

• PL 2.0%• IT 2.1%• ES 2.5%• FR 3.5%• GB -0.7%• DE 4.3%

0

10,000

20,000

30,000

40,000

50,000

60,000

Jan Mar May Jul Sep Nov

Power Demand

PL IT ES FR GB DE

Price Forecast

Traded Positions

Behaviour

Fundamentals

Coal & wind fill the gap in Germany

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000


Conventional

Hard Coal Lignite Gas

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000


Low Carbon

Nuke & Hydro Wind

Solar Biomass

Price Forecast

Traded Positions

Behaviour

Fundamentals

Less fuel switch in UK in 2015 <>2014

0

2,000

4,000

6,000

8,000

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12,000

14,000


Low Carbon

Nuke & Hydro Wind Biomass

0

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4,000

6,000

8,000

10,000

12,000

14,000


Conventional

Hard Coal Gas

Price Forecast

Traded Positions

Behaviour

Fundamentals

Industry will recover slowly

60

70

80

90

100

110

120

prod

uctio

n in

dex

Cement & Lime Metals Oil & Gas

Pulp & Paper Ceramics & Glass Other

Price Forecast

Traded Positions

Behaviour

Fundamentals

2015 emissions record low

[in Mt] 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Power&Heat 1,288 1,177 1,194 1,166 1,164 1,113 1,025 1,008 1,065 1,059 1,057 1,062 1,050

- Nordic 46 49 56 44 35 42 35 31 38 37 36 37 35

- Great Britain 191 166 172 156 171 157 131 117 122 119 116 116 106

- Central Europe 431 406 424 405 409 414 383 376 392 387 384 386 382

- Mediterranean 301 262 237 254 258 218 209 219 222 222 224 225 226

- Eastern Europe 319 294 305 307 292 282 267 265 292 295 297 298 300

Industry 832 702 745 738 704 795 790 803 803 802 802 806 811

- Cement & Lime 191 153 154 152 143 141 147 147 152 154 156 159 161

- Metals 207 146 178 177 170 197 198 200 203 205 208 212 215

- Oil & Gas 274 260 262 261 248 262 252 260 251 242 235 231 227

- Pulp & Paper 35 32 34 33 32 31 30 30 30 30 30 30 30

- Ceramics & Glass 34 27 28 28 26 31 31 31 32 32 33 33 33

- Other 90 84 89 87 85 133 132 134 136 138 140 142 144

Aviation - - - - 84 55 56 57 59 60 61 63 64

Sum: 2,120 1,879 1,939 1,904 1,952 1,963 1,871 1,869 1,927 1,921 1,921 1,931 1,925

Price Forecast

Traded Positions

Behaviour

Fundamentals

2015 supply record low

-

500

1,000

1,500

2,000

2,500

3,000

3,500

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Allo

wan

ces

in m

illio

n

Allocation Power & Heat Allocation Industry Allocation Aviation

Allocation through NER Auctions NER300 & Innovation Fund

Offsets

Price Forecast

Traded Positions

Behaviour

Fundamentals

System 800m oversupplied in 2020

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

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Ann

ual B

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Fundamental balance Cumulative fundamental balance

Price Forecast

Traded Positions

Behaviour

Fundamentals

Behaviour

Price Forecast

Traded Positions

Behaviour

Fundamentals

Hedging slowing down slightlyPrice Forecast

Traded Positions

Behaviour

Fundamentals

…But picture not consistentPrice Forecast

Traded Positions

Behaviour

Fundamentals

Utilities use EUA hedge to generate cash-flows

• RWE generated € 1.3bn cash flow from this• 2014 RWE postion was around 146Mt average hedge price was

€8.90 per tonne• But: Open Interest did not show this volume!

The result developed differently than cash flows in part because we have paid for most of the CO2 emission allowances required for 2014 in 2015, whereas we covered our need in 2013 before the end of that year.

“„

RWE Annual Report 2014

Price Forecast

Traded Positions

Behaviour

Fundamentals

Open interest shows awkward pattern

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

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200,000


Open Interest of Y+1 March EUA contracts at ICE

2012

2013

2014

Price Forecast

Traded Positions

Behaviour

Fundamentals

Open interest shows awkward pattern

0

20,000

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60,000

80,000

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Open Interest of Y+1 March EUA contracts at ICE

2012

2013

2014

2015

Price Forecast

Traded Positions

Behaviour

Fundamentals

Open interest shows awkward patternPrice Forecast

Traded Positions

Behaviour

Fundamentals

0

200,000

400,000

600,000

800,000

1,000,000

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1,600,000


2012

2013

2014

2015

TIM demand estimate spot on

0

200,000

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Jan 2012 Jul 2012 Jan 2013 Jul 2013 Jan 2014 Jul 2014 Jan 2015 Jul 2015 Jan 2016

Demand forecast

Price Forecast

Traded Positions

Behaviour

Fundamentals


0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000


Auctions (Operator) Exchange between compliance players Demand forecast

Price Forecast

Traded Positions

Behaviour

Fundamentals

The bigger market picture

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000


Auctions (Operator) Exchange between compliance playersOpen Interest RWE bandDemand forecast

Price Forecast

Traded Positions

Behaviour

Fundamentals


0.00

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14.00

0

200,000

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1,400,000

Jan 2012 Jul 2012 Jan 2013 Jul 2013 Jan 2014 Jul 2014 Jan 2015 Jul 2015 Jan 2016Auctions (Operator) Exchange between compliance playersOpen Interest RWE bandDemand forecast Price

Price Forecast

Traded Positions

Behaviour

Fundamentals

2014 saw game-changing behaviour

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Jan 2014 Apr 2014 Jul 2014 Oct 2014Auctions (Operator) Exchange between compliance playersOpen Interest RWE bandDemand forecast Price

Price Forecast

Traded Positions

Behaviour

Fundamentals

The Traded Positions

Price Forecast

Traded Positions

Behaviour

Fundamentals

System 900m short in 2020

-1000

-500

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Cum

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Ann

ual B

alan

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ion

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Fundamental balance Traded balance

Cumulative fundamental balance Cumulative traded balance

Price Forecast

Traded Positions

Behaviour

Fundamentals

The bank is depleted in 2018 – or earlierPrice Forecast

Traded Positions

Behaviour

Fundamentals

-1000

-500

0

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Cum

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Ann

ual B

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Total Banked Traded balance Cumulative traded balance

The bank is owned by the metals sector

Power9%

Cement17%

Metals53%

Aviation5%

Other16%

Price Forecast

Traded Positions

Behaviour

Fundamentals

H2 2015 Traded positions

• Q3 price rise was not high enough to balance positions• We foresee further gains in rest of year, and a break in January• Current rally fuelled by compliance buying – will be lasting

[In m tonnes]2015 2016

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

Compliance buying -63 -63 -63 -92 -68 -85 -82 -82 -54 -59 -90 -96 -77 -77 -77

Compliance selling 2 2 2 2 5 3 4 4 5 5 5 2 1 1 1

Auctions (EUAs & EUAAs)

57 49 57 64 27 70 66 67 36 63 66 66 66 63 69

Allocation from NER 1 1 1 1 1 1

NER 300

Market impact of strategic reserves

1 2 1 4 6 2 2 1 2 0 2 4 1 1 1

Traded demand -63 -61 -62 -87 -62 -83 -81 -81 -52 -59 -88 -92 -76 -75 -76

Traded supply 60 52 60 67 33 74 71 72 41 70 73 69 69 66 72

Traded balance -3 -9 -3 -21 -29 -10 -10 -9 -11 11 -15 -23 -6 -9 -4

Cumulative traded balance

-101 -110 -113 -134 -164 -173 -183 -193 -204 -193 -208 -230 -237 -246 -250

Price Forecast

Traded Positions

Behaviour

Fundamentals

Price Forecast

Price Forecast

Traded Positions

Behaviour

Fundamentals

Rally to continue through 2016Price Forecast

Traded Positions

Behaviour

Fundamentals

Further price jump after 2018

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pric

e [€

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Range Base Average

Price Forecast

Traded Positions

Behaviour

Fundamentals

Coffee Break

11:00 – 11:30

Market impact of the Post-2020 EU ETS proposal


Philipp RufLead Analyst – EU Carbon Markets

Agenda

1) The 4th trading period in the pre-2020 world

2) Mitigation of the CSCF

3) The complete picture

4) The policy

5) Questions

The 4th trading period in the pre-2020 world

The cap

Phase 3

52.40%42.60%

3.08% 1.92%

auctions allocation NER NER 300 innovation fund modernisation fund

Phase 4

55.00%38.00%

2.42%2.58% 2.00%

Allocation rules

• Preliminary allocation based on production baseline and benchmarks

• Allocation baseline Post-2020: average production 2013-2018

• Benchmark: one-off revised calculation of the benchmarks

• CSCF functioning as in 2013-2020

• Carbon leakage: same list as in 2013-2020

Production baseline

60

70

80

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120

prod

uctio

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dex

Cement & Lime Metals Oil & Gas

Pulp & Paper Ceramics & Glass Other

Preliminary allocation (incl. heat)

0

200

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prel

imin

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free

allo

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n [m

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preliminary free allocation

The CSCF

0%

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CS

CF

[%]

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wan

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[m E

UA

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allocation use of left-over allocation cut left-over industry cap CSCF

Mitigation of the CSCF

The cap (NER)

• NER in phase 4 not filled with phase 4 allowances

• Breathing NER – starts with approx. 395m in 2021

• Sourced by phase 3 allowances

• 145m left-over allocation

• 250m from MSR stock

Phase 4

55.00%40.42%

2.58% 2.00%

auctions allocation

innovation fund modernisation fund

Increase of max allocation volumes by 375.2m

The cap (NER)

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Avoidance of left-over volumes

• The allocation procedure in the third trading period could have produced two left-over pots

• As the CSCF was triggered every year, the first pot did not materialise

• The second pot was filled with 145m EUAs which the Commission intends to transfer to the NER for the fourth trading period


limit of free allocation

allocationallocation free of

charge100% CL

80-30% non CL

CSCFpreliminary > limitcompare

preliminary < limit

left-over 1 left-over 2

The first flow back

• Commission proposed to use the first left-over pot in phase 4 to mitigate the impact of the CSCF in later years

Preliminary free allocation

Max. free allocation

surplus

> Max. free allocation

CSCF triggeredPreliminary free

allocation

>

used to mitigate CSCF in next years

Increase of max allocation volumes by 272.3m

The second flow back

• Commission proposed to adjust the allocation with the carbon leakage exposure factor (CLEF) before calculating the CSCF and consequently avoid the second left-over pot completely


allocation100% CL

30% non CL

limit of freeallocation

allocation > limitcompare

allocation < limit

allocation free of charge

CSCF

left-over 1

Decrease of preliminary allocation volumes by 1,003.6m

Flow backs

0%

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The benchmark flat rate reduction

• Commission proposes to adjust the benchmark with a yearly flat rate of 1% of the 2007-2008 base period benchmark

period

# of adjustment years

example

base period2007-2008

allocation period2021-2025

2008

2023

100 85100 - 15 years * (100 * 1%)

15 years

decrease of preliminary allocation by 324.1m

The benchmark flat rate reduction

0%

20%

40%

60%

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The two period approach

• In order to use more up to date production and benchmark numbers the Commission proposes to make two allocation period

1st allocation period

2021-2025

2nd allocation period

2025-2030

production baseline

2013-2017

production baseline

2018-2022

benchmark2023

benchmark2028

decrease of preliminary allocation by 34.2m

The two period approach

0%

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The carbon leakage list

• The Commission proposes to slightly reduce the carbon leakage list in the fourth trading period

• It is expected that still around 93% (97% in phase 3) of industrial emissions will be on the carbon leakage list

• Only sector with very low carbon intensity will switch to the non-carbon leakage exposed group

The carbon leakage list

0%

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The benchmark flexibility

• In order to account for different technological progress in the covered sectors, the Commission proposed to use 3 different flat rates to adjust the benchmarks

fluctuation of preliminary allocation by 595.7m

default flat rate1%

improvement rate between 0.5% and 1.5%low flat rate

0.5%improvement rate between < 0.5%high flat rate

1.5%improvement rate between > 1.5%

The benchmark flexibility

0

500

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ulat

ive

left-

over

of i

ndus

try

cap

[m E

UA

s]

prel

imin

ary

allo

catio

n [m

EU

As]

0.50% 1.00% 1.50%

The low rate

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The high rate

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The complete picture

Additional features

• Breathing NER• Filled by cessation/closures• Depleted by new installations & production increases

• Transitional free allocation• 10 eligible member states• Up to 40% of their auction volume

• Innovation fund• 50m pre-2020 filled by MSR stock• 400m post-2020 sourced from cap

• Modernisation fund• 2% of the cap – approx. 310m• Along with regular auctions

Cumulative fundamental balance

0

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cumulative fundamental balance yearly abatement

Cumulative fundamental balance

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MSR cumulative fundamental balance

Price forecast

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pric

e [€

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EUA price

The policy

Important stakeholder – Parliament

• ENVI• Ian Duncan, rapporteur ECR

• Ivo Belet, shadow rapporteur EPP

• Jytte Guteland, shadow rapporteur S&D

• Gerben-Jan Gerbrandy, shadow rapporteur ALDE

• ITRE• Frederick Federley, rapporteur ALDE

• Esther de Lange, shadow rapporteur EPP

• Edouard Martin, shadow rapporteur S&D

• Hans-Olaf Henkel, shadow rapporteur ECR

Important stakeholder – Council

• Groups of member states• Green Growth Group (13 members) – BE, DK, EE, ES, FI, FR, DE, IT,

NL, PT, SI, SE, UK

• Visegrad Group (4 core + 2 affiliates) – CZ, HU, PL, SK, BG, RO

• CZ, FR, SK, FR – tiered approach for carbon leakage

• Presidency: LU (H2 '15); NL(H1 '16); SK (H2 '16); MT (H1 '17)

• Single member states• Germany

• France

• UK

• Poland

Discussed topics

• Linear reduction factor – not discussed However the Visegrad group already prepares for a post-COP

discussion about an higher target

• CSCF - key topic

• Carbon leakage list – key topic

• Benchmarks – key topic

• Use of MSR volumes – key topic

• Dynamic allocation – medium topic

• Fixed auction share – medium topic

• Price floor – on the side-lines

Policy timeline in Parliament

Jan Feb Mar Apr

ITRE exchange of views

consideration of draft

amendments

deadline for AM

ENVI public hearingconsideration & deadline for

AM

Plenary

Policy timeline in Parliament

May Jun Sep Nov

ITRE vote in ITRE

ENVI consideration of AM vote in ENVI

Plenary vote in plenary

Questions

Lunch Break

12:30 – 14:00

The compliance viewStakeholder opinion on Post-2020 issues



Panellists

• Moderator• Ben Lee – Lead Reporter Carbon – ICIS

• Panellists• Manuela Ojan – Climate Protection Manager – Italcementi Group• Carolina Villalibre Calderon – Commodities Derivatives Trader –

Repsol• Liv Rathe – Director – Norsk Hydro Ltd• Alexandros Katsiampoulas – Environment, Quality & Sustainable

Development Manager – TITAN Cement

Coffee Break

15:30 – 16:00

An international perspective



US Markets

Judith SchröterLead Analyst – US Carbon & Global Offsets

How will the post-2020 discussions impact California’s cap-and-trade? (1)

0

500

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4500

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10.5

11

11.5

12

12.5

13

13.5

Tra

ding

Vol

umes

CC

A p

rice

in $

CCA Price Developments

Trading Volume Price Price Floor Auction Clearing Price

Source: ICE and ARB


• Market is oversupplied significantly through 2020

• Discussion on the post-2020 framework include:

• 40% below 1990 levels target• REDD addition to offset

program• Clean Power Plan

• Complimentary mechanism• RPS• LCFS

-

50

100

150

200

250

300

350

400

450

500

2013 2014 2015 2016 2017 2018 2019 2020

Mill

ion

s

Supply Emissions Cumulative Balance

-100

-50

-

50

100

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200

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300

2013 2014 2015 2016 2017 2018 2019 2020

Mill

ion

s

Yearly Traded Positions Fundamental Balance

Cumulative Traded Positions Cumulated Fundamental Balance


2030 target: 40% below 1990

2050 target: 80% below 1990

(400.00)

(300.00)

(200.00)

(100.00)

-

100.00

200.00

300.00

400.00

500.00

Mill

ion

s

Emissions California Base Case Cap Cumulative Balance

RGGI: An example of a successful program redesign (1)

• Small ETS in the North-East• Yearly Emissions: 87m short tons• Only the power sector covered• Close to no free allocation

2005 2013


$0.00

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$30.00

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2009 2011 2013 2015 2017 2019

[m t

on

nes

]

Effective Cap Cap Adjustments Covered Emissions Average price


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Traded Volume Price Auction Clearing Price

Chinese Markets

Simon ChenAnalyst – Chinese Carbon Markets

Agenda

• ICIS exposure in China carbon markets

• Pilot ETSs

• National ETS

Our exposure in Chinese carbon markets

• 6 members in China carbon team• We cover:

• Compliance companies – updates and forecast, educating and consulting etc.

• Non-compliance players – updates and forecast, risk management, marketing opps etc.

• Local and National DRCs – policy design and commenting

• In H1 2016, we plan to:• Update price forecasts for pilots and NETS• Keep a close eye on any development of NETS• develop CCER pricing for NETS• Host the 1st China Carbon Expo with partners (under discussion

now)

Agenda


• Pilot ETSs

• National ETS

Allowances price movement in pilot ETS

0

20

40

60

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120

140

01/06/2013 01/09/2013 01/12/2013 01/03/2014 01/06/2014 01/09/2014 01/12/2014 01/03/2015 01/06/2015 01/09/2015

Average Price for SZ Average Price for SH Average Price for BJ Average Price for GDAverage Price for TJ Average Price for HB Average Price for CQ

CCERs available for 2015 compliance

Shenzhen Guangdong Beijing Shanghai Tianjin Hubei Chongqing

Total issuance (by 2016 H1) (estimated)

6.1 – 6.6m 5.8 – 6.8m 3.9 – 4.4m 4.8 – 5.4m 3.9 – 4.4m 1.6 – 1.9m 17.1 – 18.3m

SurrenderedCCERs for 2014 compliance

0.9m (primarily pre-CDMCCERs)

0.4m 0.06m 0.5m 0.3m (out of which, 50%

were ineligible CCERs)

0.6m Unknown – but expected to be

close to 0

CCERsavailable for 2015 compliance

5.0 – 5.5m 4.7 – 5.7m 3.3 – 3.8m 3.7 – 4.3m 2.6 – 3.1m 1.0 – 1.3m 14.3 – 15.5m

• Above figures are based on issued volumes or MR volumes (if the final approved MR has not been published)

• Note: When calculating the CCERs available for 2015 compliance, there will be some double-counting of the CCERs surrendered for 2014 compliance

Current challenges in pilot ETS• Illiquid market

• No derivatives

• Uncertainties• Delay in compliance deadline• Ad-hoc auctions• Adjustment of allowances

• Unstable rules and regulations• Ever-changing rules (e.g. CCERs)

Agenda


• Pilot ETSs

• National ETS

NETS Highlights

• Note: The information provided in the table above are gathered through various documents, announcements and speeches released by the NDRC.

China's National ETS OverviewRegulator National Development and Reform Commission

Registry National Registry System (incl. creation, transfer and cancellation of carbon allowances and offsets)

Exchanges Target to have a total of 7 – 10 exchanges; the existing 7 pilot exchanges might possibly remain.

Emissions coverage

Initial phase to include: Power, Steel, Non-ferrous metals, Building Materials, Chemical, Paper-making and Aviation. Compliance companies already enrolled in the Chinese pilot scheme may be included regardless of whether they are from the listed sectors to include more sectors in later phases.

Geographic coverage

Not announced. Most probably the 7 existing pilot regions and other more developed pilot regions

Emissions threshold

≥26,000 tonnes emissions annually

Allowances allocation

Will adopt free allocation and auctions; NDRC sets caps for each enrolled provinces and the local DRCs will allocate allowances to the compliance companies. Detailed allowances allocation mechanism not yet announced.

Offset Chinese Certified Emissions Reduction (CCER)

Penalty Not announced.

LinkageNDRC will explore the possibility of linking the National ETS with other ETSs around the world at an appropriate time in the future.

Concens/challenges: pilot allowances

• No clear instructions from the NDRC yet

• Slightly less than one year back, we hold the view that there is a high possibility that the pilot allowances cannot be banked into the National ETS.

• Currently, we see an increased possibility that the pilot allowances can be banked, but at a ‘discount/exchange’ rate. Full banking of excess pilot

allowances might be undesirable for the national market – excess pilot allowances might exceed 100m tonnes.

• Possible ways to transit:• Allow compliance companies to use their excess pilot allowances in the first / second

year (probably up to 5% - 10%)• ‘Reward’ pilot ETS DRCs with slightly more free allocation in the first year (probably up

to 5% - 10%)

• Possible buybacks from Hubei and Guangdong DRCs – but we’ll not bet our

money on that

Concerns/challenges: allocation policy• Allocation methods

• Benchmarking – Power, Cement and Chemicals• Grandfathering (historical carbon intensity) – Steel, Cogeneration,

Aviation

• ICIS’s evaluation

• Benchmarks for Power quite stringent – more stringent than Guangdong and close to Shanghai

• Therefore, we expect Power sector to be short• Industry as a whole to be long (but not as severe as in EU ETS

cause reduction in production is taken into consideration in the allocation)

Chinese National Emissions Allowances Price forecast (CNY)

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Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2017 2018 2019 2020 2021

Allowance price (base case)Allowance price (base case - purely compliance companies' seasonal behaviour)Allowance price (low case)Allowance price (high case)

COP21

Judith SchröterLead Analyst – US Carbon & Global Offsets

COP 21 – who, when, and why?

COP 21Conference of

the Parties or the UNFCCC

31 Aug - 4 Sep ADP

Bonn, Germany

Ad Hoc Working Group on the Durban Platform for Enhanced Action (ADP)

Mandate → develop another instrument with legal force to be completed COP 21 and be implemented from 2020

CMP 11Meeting of the

Parties of the KP

19 - 23 OctADP

Bonn, Germany

30 Nov - 11 DecCOP & CMPParis, France

Targets (INDCs)

• 149 countries, 86% global emissions• 2.7°C warming by 2100

Countries CO2 reduction Target CO2 intensity target

China Peak by 2030 at latest 60% to 65% by 2030 vs 2005

USA 26-28 % by 2025 vs 2005

EU 40% by 2030 vs 1990

India 33% to 35% by 2030 vs 2005

Russia 6-11% by 2030 vs 1990

South Korea 37% by 2030 vs BAU

State of play (1/2)

Draft agreement• Purpose: Global average temperature at or below 2 °C• Mitigation

• National targets: INDCs, communication period unclear (147 countries, 87% of global emissions

• Global target: language unclear• Parties may cooperate on mitigation activities implementation

• Compliance: mechanism to be facilitative, non-punitive, non-adversarial, non-judicial

• Climate finance: Scaled up from [USD 100bn/year] from 2020

New ADP co-chair text20 pages (86 before)

5 Oct

Draft agreement: 9 pages

Draft decision: 11 pages

State of play (2/2)

Draft decision

• Discuss how to continue existing mechanism of the UNFCCC

• Allow transfer of mitigation outcomes (+ domestic reduction)

• Promotes voluntary cancellation of emission reductions incl. CERs

• Develop mechanism based on CDM for use towards obligations

New ADP co-chair text20 pages (86 before)

5 Oct

Draft agreement: 9 pages

Draft decision: 11 pages

Questions

Contact

ICIS

Tschach Solutions GmbH

Steinhäuserstrasse 9

76135 Karlsruhe / Germany

Direct: +49 (0) 721 205 9629 00

http://analytics.icis.com

http://analytics.icis.com

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