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Carbon Market Report. See how the EU carbon market operates and delivers emission reductions.

Today is Wednesday, January 10, 2024.

A few weeks ago the European Commission released the Carbon Market Report, reviewing the practical functioning of the EU Emissions Trading System (EU ETS) in 2022 and the first half of 2023.

The EU ETS sets yearly caps currently covering about 36% of all EU greenhouse gas emissions, with the cap decreasing every year towards reduced emissions and climate targets. Main sectors impacted in Europe are power and energy-intensive industries and aviation.

And from COP-28, important to have in mind what was said about the ETS by “the father of CBAM”, Mohammed Chahim, Moroccan-born Dutch politician, Member of the European Parliament:

"By 2038 EU expects allowances to reach zero".

In spite of that, the EU ETS scope will be extended to the maritime sector from 2024 and for buildings, road transport and small-emitting industry in 2027. After that, three quarters of EU emissions will be covered.

Note that agriculture is not included and appears not foressen to be. Land related matters, of national nature, remain rooted on country flags, regardless of unions, blocks or trade agreements. In a World with 8 bilion peple, food security is a critical issue. Together with water.

It is indicated that the EU ETS had helped bring down emissions from power and industry sectors to 37.3% below 2005 levels and that, to date, the total amout of ETS auction revenue reached EUR 152 billion.

Biomass fuels that meet certain sustainability and greenhouse gas savings criteria are also being monitored and can be considered zero-rated, meaning that "their CO2 emissions do not count as fossil CO2". Interesting. Like the chapter "Link between the EU ETS and the Swiss ETS".

About international aviation, relevant to have "on the radar" that the current European scheme launched in 2021 is voluntary for all states until 2026. As of 2027, it should be no longer voluntary for major aviation countries. It is not yet clear if all obliged countries will apply it after that.

In certain ETS sectors (cement, aluminium, fertilisers, hydrogen, iron and steel) free allocation will be gradually replaced by a carbon border adjustment mechanism (CBAM) from 2026. By the way, worth reading the chapter "6. Free allocation of allowances".

Carbon auction prices were obviously also discussed in the report:

  • EUR 97.51 highest in 2022.

  • EUR 57.91 lowest, during a period of increased market volatility triggered by the conflict in Ukraine.

  • EUR 80.18 average in 2022.

  • EUR 75.04 - EUR 96.33 range in the first half of 2023.

Click at the image below to access the report and here to see how the member states invest the proceeds from ETS auctions, mainly in measures to address the effects of the energy crisis and help people and businesses.

All in all, this ETS Carbon Market Report is a great practical reference, specially for countries still debating how to structure a sound and well-functioning Compliance Carbon Market.

Before we finish, another good reference about Compliance Carbon Markets was released last July by IOSCO, the International Organization of Securities Commissions, "the global regulator of stock exchanges", from where we quote:

"Compliance Carbon Markets (CCMs), or Emissions Trading Systems (ETS) markets, fall under two broad categories. The first and most widely used ... called “cap-and-trade”... carbon emission allowances for domestic firms and sectors are issued by governmental organizations. These allowances mandate the maximum amount of CO2 that holders are permitted to emit. Each allowance ... one ton of a pollutant such as CO2. These may be subsequently traded in a secondary market... In the second type of compliance carbon market, called the “baseline-and-credit system”, there is no fixed limit on emissions but carbon emitters that reduce their emissions ... can earn allowances that they can sell to others who need them".

By the way, IOSCO's proposal for the Voluntary Carbon Markets is currently a matter of another important public consultation, open for comments until 3 March 2024. It is titled "Consultation Report to promote the integrity and orderly functioning of the Voluntary Carbon Markets (VCMs)". Recall.


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“Nothing in life is to be feared, it is only to be understood. Now is the time to understand more, so that we may fear less.”

“I am among those who think that science has great beauty”

Madame Marie Curie (1867 - 1934) Chemist & physicist. French, born Polish.

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