IETA NETWORK CONNECTION
A hot topic
Last week, the temperatures in Brussels reached 41°C. It was similarly warm in the Netherlands, France, the UK and some parts of Germany. For many, summer heatwaves are a great motivator to demand climate change action from policy makers. This increased public pressure to speed up decarbonisation leads to national policies to clean up the energy mix. As a result, coal is not only becoming increasingly uneconomic but also unwelcome and unfashionable.
More than half of the EU’s member states that still have coal in their power mix are planning to phase it out. Among them are those with just a marginal share of coal, like Austria or Ireland, but also heavy users such as Germany, with about 40GW of installed coal-fired generation capacity at 84 power plants across the country. But phasing out coal means phasing out demand for emission allowances. And given that the EU ETS has only just recovered after years of a structural supply-demand imbalance, a policy tool that protects the market against unintended consequences of national coal exits is much-needed.
Fortunately, the revised EU ETS Directive is offering one. It allows Member States to voluntarily cancel emission allowances to compensate for additional national measures that lead to closure of electricity generation capacity in their territory. In the months to come, the review of the Auctioning Regulation implementing this provision is expected to be adopted. The review will clarify, inter alia, the procedure for cancelling allowances.
While, to date, governments considering coal phase-outs do not yet appear to have made decisions on whether they would make use of the cancellation option, IETA went ahead and agreed a position in favour of the voluntary cancellation. IETA members debated at length whether a cancellation would be an intervention, or whether cancellation would follow an intervention. The latter interpretation was decided upon, and we concluded that national coal phase-out policies form an intervention that should be corrected by a cancellation. This is because a large-scale shutdown of coal-fired generation, happening simultaneously in several countries, would significantly affect the functioning of the EU’s carbon market. The Market Stability Reserve, a mechanism that absorbs the surplus of allowances accumulating in the market, can only mitigate the impact to a certain degree. IETA is now urging Member States to monitor the impact of national coal phase-outs on the functioning of the EU ETS and to voluntarily cancel emission allowances.
Further, in cases where member state opts for a coal phase-out policy because it believes that the EU ETS does not deliver the carbon price signal needed for a transition away from coal, not cancelling allowances would be contra-logical and set in motion a domino effect of continued national interventions in the carbon market.
IETA is ready for a heated debate on coal phase outs and the cancellation of allowances. If we are to keep the global average temperature increase from running out of control, both a rapid decarbonisation and an effective functioning carbon market are vital.
IETA has been working to update its EU ETS trading documentation to allow market participants to prepare for forward trading in Phase 4. This process is now complete and the new documents include amendments for compliance with MIFID 2 regulations and rule out eligible Kyoto units being carried over from Phase 3 to 4. Updated versions of IETA’s Single Trade Agreement (STA) and Emissions Trading Master Agreement (ETMA) are now available on our Trading Documents webpage.
For more information on IETA and our work, see www.ieta.org
19-23 August: Join us at the Latin America & Caribbean Climate Week in Salvador, Brazil
2-6 September: IETA will be at the Asia Pacific Climate Week in Bangkok
24-25 September: Several of IETA's team will be attending Carbon Forum North America in New York
16-18 October: Julia Michalak and Simon Henry will be participating in Carbon Forward in London - mention their names for a discount when booking
21-22 October: Catch up with Julia Michalak at the BNEF Summit 2019 in London
IETA Member's Corner
How is Woodside involved in the carbon market?
Woodside is Australia’s largest natural gas producer and produces 6% of global LNG supply. The company pioneered the LNG industry in Australia and has a global portfolio with development opportunities in Africa, Asia and North America.
Woodside has established a business within which it aims to work with partners to generate, acquire and trade in the provision of carbon offsets. This is in service of its obligations under the Australian Government’s Safeguard mechanism.
Woodside is also committed to having its portfolio be part of the solution to climate change and actively explores options for integrating renewables and batteries with gas-fired power at the facilities it operates. The company is also watching developments in hydrogen power closely.
Why did you join IETA?
In line with our aspirations to be part of the solution on climate change, we have taken a more active role in carbon markets both domestically and internationally. IETA is recognised as the centre of excellence on carbon markets and we are keen to learn from the knowledge and insights they generate, to help us achieve this aspiration.
IETA also provides the platform for organisations like Woodside to connect with the extended network of expertise needed to deliver input to the climate change policy making process, whilst balancing effectively the interest of all stakeholders.
We look forward to contributing to IETA’s ongoing efforts in the international carbon market community and benefiting from such a knowledgeable network.