EU ETS Monthly Report — April 2019

European carbon advanced 20% in April, with the December 2019 futures contract ending the month at €26.29 on Ice Futures. Screen-traded volume in the benchmark cotnract was up almost 10% on March, as activity built up in the run-up to the annual compliance deadline.

The main price influence during the month was the postponement of the Brexit deadline from March 29 to October 31. The eight-month delay gives the UK Parliament another opportunity to ratify the withdrawal agreement reached with the European Union last year, though this postponement won’t allow for UK installations to resume participation in the market.

The text of the relevant Commission decision reads: “From 1 January 2019, the Central Administrator shall suspend the acceptance by the EUTL of relevant processes for the United Kingdom relating to free allocation, auctioning and the exchange of international credits.

“This suspension shall cease from the day following the one on which the instruments of ratification of both Parties to the Withdrawal Agreement are deposited… and the end of the suspension shall be made public.”

To this end, the EU ETS as a whole can be considered shorter on an annual basis, since UK installations routinely emit less than the country’s allocation of EUAs. This bullish factor generated a slight relief rally, with prices rising from €21.91 on April 1 to €26.13 just ten days later. Carbon reached a new 11-year high of €27.85 on April 12.

Participants said this Brexit- and compliance-related rally also encouraged speculative investors to resume building long positions, which some had been liquidating in March in expectation of a no-deal Brexit, which might have triggered widespread selling by UK installations.

Carbon was also supported by a gradual increase in natural gas prices: the June TTF contract rallied strongly by mid-month, gaining as much as 13%, while June coal fell 3%.

With gas-fired generation estimated to be preferred to all but the most efficient coal plants, carbon tracked the fortunes of power and gas over the course of the month. The 30-day correlation at the end of April between December 2019 carbon and calendar 2020 power was 0.949, while for calendar 2020 gas it was 0.863. Meanwhile, for carbon and coal the correlation was 0.502.

As the market moves into May, the end of compliance is expected to lead to a decline in demand, yet at the same time, the massive jump in carbon prices year-on-year (a year ago, the market ended April at €13.59) means many compliance installations will be managing their exposure more carefully by buying regularly.

In addition, utilities in southern and eastern Europe do not typically sell forward power and hedge fuels and carbon, and so are expected to continue to buy regularly to cover their ongoing generation.

The market was also tightened in April by interruptions in the auction schedule over the Easter break, and this will be repeated at both the start and the end of May. EU member states will sell 46.6 million EUAs in coming month, compared to 52.8 million in April.

Mid-May will also see the European Commission publlish its calculation of the Total Number of Allowances in Circulation (TNAC) for 2018. This number will be the basis for the operation of the Market Stability Reserve over the period from September 2019 to August 2020.

At present, the European Energy Exchange auction calendar for the period from September through to December lists a total of 305 million EUAs to be sold, but this total was only ever notional, and will be adjusted once the TNAC is known.

By the same token, several countries will shortly announce additional supply for auction from June, which will offset the reductions through the MSR to some small extent.

Study: Global warming has increased economic inequality since the 1960s

A new Stanford University study shows global warming has increased economic inequality since the 1960s. Temperature changes caused by growing concentrations of greenhouse gases in Earth’s atmosphere have enriched cool countries like Norway and Sweden, while dragging down economic growth in warm countries such as India and Nigeria.

“Our results show that most of the poorest countries on Earth are considerably poorer than they would have been without global warming,” said climate scientist Noah Diffenbaugh, lead author of the study published April 22 in the peer-reviewed Proceedings of the National Academy of Sciences. “At the same time, the majority of rich countries are richer than they would have been.”

Although economic inequality between countries has decreased in recent decades, the research suggests the gap would have narrowed faster without global warming.

While the impacts of temperature may seem small from year to year, they can yield dramatic gains or losses over time. For example, after accumulating decades of small effects from warming, India’s economy is now 31 percent smaller than it would have been in the absence of global warming.

At a time when climate policy negotiations often stall over questions of how to equitably divide responsibility for curbing future warming, this analysis offers a new measure of the price many countries have already paid. “Our study makes the first accounting of exactly how much each country has been impacted economically by global warming, relative to its historical greenhouse gas contributions,” said the authors.

While the biggest emitters enjoy on average about 10 percent higher per capita GDP today than they would have in a world without warming, the lowest emitters have been dragged down by about 25 percent. The researchers emphasize the importance of increasing sustainable energy access for economic development in poorer countries.

More information about the study here

GSIA Report: Global sustainable investment assets reached $30.7 trillion in 2018, a 34% increase from 2016

The Global Sustainable Investment Alliance (GSIA) released its biennial Global Sustainable Investment Review 2018, showing that global sustainable investment assets reached $30.7 trillion at the start of 2018, a 34 percent increase from 2016.

In its fourth edition, the biennial Global Sustainable Investment Review brings together the results from regional market studies by the sustainable investment forums of Europe, the United States, Japan, Canada, and Australia and New Zealand. It also includes data on the African sustainable investing market in cooperation with the African Investing for Impact Barometer and highlights from several countries in North, Central and South America provided by the Principles for Responsible Investment.

The 2018 Global Sustainable Investment Review found that sustainable investing assets have grown in all regions since 2016. Europe accounts for the largest concentration of sustainable investment assets globally, with total assets of €12.3 trillion ($14.1 trillion). However, the share of Europe’s sustainable investing assets in the region’s overall assets under professional management declined from 53 percent to 49 percent. The slight drop may be due to a move to stricter standards and definitions of sustainable investing.

The United States is the second largest region based on its value of sustainable investing assets. Total US-domiciled assets under management using sustainable strategies grew from $8.7 trillion at the start of 2016 to $12.0 trillion at the start of 2018, an increase of 38 percent.

In Japan, sustainable investing assets quadrupled from 2016 to 2018, growing from just 3 percent of total professionally managed assets in the country to 18 percent. This growth has made Japan the third largest center for sustainable investing after Europe and the United States.

In Canada, sustainable investing assets grew by 42 percent over the two-year period and now account for over 50 percent of professionally managed assets in the country.

Australasia (Australia and New Zealand) is the region with the greatest proportion of sustainable investment assets relative to total assets under management: 63 percent.

You can download the report here

Renewable Energy Now Accounts for a Third of Global Power Capacity

The decade-long trend of strong growth in renewable energy capacity continued in 2018 with global additions of 171 gigawatts (GW), according to new data released by the International Renewable Energy Agency (IRENA). The annual increase of 7.9 per cent was bolstered by new additions from solar and wind energy, which accounted for 84 per cent of the growth. A third of global power capacity is now based on renewable energy.

IRENA’s annual Renewable Capacity Statistics 2019, the most comprehensive, up-to-date and accessible figures on renewable energy capacity indicates growth in all regions of the world, although at varying speeds. While Asia accounted for 61 per cent of total new renewable energy installations and grew installed renewables capacity by 11.4 per cent, growth was fastest in Oceania that witnessed a 17.7 per cent rise in 2018. Africa’s 8.4 per cent growth put it in third place just behind Asia. Nearly two-thirds of all new power generation capacity added in 2018 was from renewables, led by emerging and developing economies.

“Through its compelling business case, renewable energy has established itself as the technology of choice for new power generation capacity,” said IRENA Director-General Adnan Z. Amin. “The strong growth in 2018 continues the remarkable trend of the last five years, which reflects an ongoing shift towards renewable power as the driver of global energy transformation.

“Renewable energy deployment needs to grow even faster, however, to ensure that we can achieve the global climate objectives and Sustainable Development Goals,” continued Mr. Amin. “Countries taking full advantage of their renewables potential will benefit from a host of socioeconomic benefits in addition to decarbonising their economies.”

Globally, total renewable energy generation capacity reached 2,351 GW at the end of last year – around a third of total installed electricity capacity. Hydropower accounts for the largest share with an installed capacity of 1 172 GW – around half of the total. Wind and solar energy account for most of the remainder with capacities of 564 GW and 480 GW respectively. Other renewables included 121 GW of bioenergy, 13 GW of geothermal energy and 500 MW of marine energy (tide, wave and ocean energy).

The full report is available here. Highlights of key findings can be found here.

State of the Climate in 2018 report shows accelerating climate change impacts

The physical signs and socio-economic impacts of climate change are accelerating as record greenhouse gas concentrations drive global temperatures towards increasingly dangerous levels, according to a new report from the World Meteorological Organization.

The WMO Statement on the State of the Global Climate in 2018, its 25th anniversary edition, highlights record sea level rise, as well as exceptionally high land and ocean temperatures over the past four years. This warming trend has lasted since the start of this century and is expected to continue.

These key climate change indicators are becoming more pronounced. Carbon dioxide levels, which were at 357.0 parts per million when the statement was first published in 1994, keep rising – to 405.5 parts per million in 2017. For 2018 and 2019, greenhouse gas concentrations are expected to increase further.

The WMO climate statement includes input from national meteorological and hydrological services, an extensive community of scientific experts, and United Nations agencies. It details climate related risks and impacts on human health and welfare, migration and displacement, food security, the environment and ocean and land-based ecosystems. It also catalogues extreme weather around the world.

“The data released in this report give cause for great concern. The past four years were the warmest on record, with the global average surface temperature in 2018 approximately 1°C above the pre-industrial baseline,” UN Secretary General António Guterres wrote in the report. “There is no longer any time for delay”.

“It is one of my priorities as the President of the General Assembly to highlight the impacts of climate change on achieving the sustainable development goals and the need for a holistic understanding of the socio-economic consequences of increasingly intense extreme weather on countries around the world. This current WMO report will make an important contribution to our combined International action to focus attention on this problem,’’ said  UN General Assembly President María Fernanda Espinosa Garcés.

EU ETS Monthly Report — March 2019

European carbon prices drifted 3.3% in March as utility demand faded amid poor generating margins for coal. The December 2019 futures contract ended the month at €21.54 after trading in a €3 range between €20.50 and €23.50.

Persistent weakness in natural gas prices meant that fuel-switching was the main market driver. Calendar 2020 TTF futures fell 8.7% in March, while API2 coal lost 10% and German power declined 5.5%.

The combination of price moves meant that gas-fired power remains more profitable than coal, with the result that demand for carbon allowances for future hedging was depressed. Utilities were notable for their modest participation in the market.

The onset of milder weather reduced heating demand, while a number of traders also highlighted weakening economic data that may signal a decline in industrial production.

Screen trading activity on ICE Futures declined, with 345 million EUAs changing hands in the benchmark EUA futures contract in March, compared with 415 million in February. However, there was a notable uptick in broker-arranged deals in the second half of the month, with so-called block trades on ICE reaching as much as 35 million EUAs on March 20, compared with the daily average of 8.6 million.

Participants were hard-pressed to explain the surge in block trades; with utilities largely on the sidelines, the most common explanation was investors shifting positions through time spreads.

The continuing uncertainty surrounding Britain’s withdrawal from the EU also contributed to depressed liquidity. British lawmakers twice rejected the negotiated withdrawal agreement, but also voted against leaving the Union without a deal. As of the end of March, the UK faces leaving the EU without a deal on April 14.

April kicks off with the release of verified emissions data for 2018, which analysts expect to reveal a drop of around 3-4%. The decrease is likely to reflect the onset of widespread fuel switching, as well as a strong recovery in hydro generation. Industrial production is expected to be broadly unchanged.

Towards mid-month the Brexit saga will reach another climax, with the current departure date scheduled for April 12. It’s not clear whether Parliament will manage to ratify the withdrawal agreement by then, and most observers are expecting the UK to seek a lengthy extension of the Article 50 deadline.

This may well mean that UK installations could continue to participate in the EU ETS through to the end of Phase 3 in 2020.

The impact on the market is likely to be bullish in the very short term, with traders driving a “relief rally”, but since the UK is generally accepted to emit less CO2 than it allocates in emissions allowances, prices may well decline in the longer term.

Adaptation to climate change through the recycling of plastic bottles

According to recent studies, during the process of decomposition of the plastic, methane and ethylene emissions are produced, two greenhouse gases with a high global warming potential. That is, certain plastics are vulnerable to degradation processes caused by environmental factors such as light, heat, humidity, chemical oxidation and biological activity, which cause physical and chemical changes in the structure of the polymer. According to a recent study published in PLOS ONE (Royer SJ, Ferron S, Wilson ST, Karl DM (2018) Production of methane and ethylene from plastic in the environment PLoS ONE 13 /10.1371/journal.pone.0200574), polyethylene releases additives and other degradation products into the environment throughout its life and, once released, can be toxic and have adverse effects on the environment and human health. In addition, these emissions increase progressively over time.


Mitigation and adaptation to climate change

In recent years, numerous initiatives to reduce and recycle this type of waste are emerging. Increased recycling of plastic will help reduce dependence on fossil fuels and reduce CO2 emissions, in line with the climate change mitigation commitments of the Paris Agreement. But there are other innovative solutions, that are achieving the manufacture of different products from the recycling of plastics. Small companies that are capable of producing construction material using recycled plastic bottles as raw material. These building blocks have characteristics of lightness, durability and versatility that make them perfect for the reconstruction of areas affected by extreme events caused by climate change, thus contributing to the adaptation to climate change.

The insulating capacity of the material allows to the construction of adequate housing for those places where heat waves cause serious health problems, especially in the most vulnerable populations.

Water is the main agent of deterioration of porous materials such as stone and brick, and changes in humidity induced by climate change are a concern in the construction sector, which does not affect homes built with such recycled blocks. Its lightness also makes its transfer less expensive, less emission of greenhouse gases, and easy to take to areas devastated by extreme weather events such as floods, tsunamis or earthquakes. All these characteristics also facilitate the construction of temporary settlements during these phenomena.

In the long term, if such initiatives are sucessfully, the plastic value chain will be much more integrated, and the chemical industry will work closely with recyclers to help them, for example, by replacing substances that disturb recycling processes.


Improving the resilience of ecosystems

Recover plastic waste accumulated in rivers banks, beaches and any other ecosystem for manufacturing the recycled construction blocks, will increase the quality and quantity of species of flora and fauna, especially those that are threatened, thereby increasing biodiversity. The greater the number of species that live in an ecosystem, the more likely they are to survive, thus ensuring that their functionality is maintained and they are, therefore, more resilient to the effects of climate change.

The cleaning activities of river banks to obtain plastic wastes also contribute to a better recharge of local aquifers and therefore guarantee greater access to water. In addition, local incentives can be created that in some way encourage cleaning activities of this type of ecosystem.


Contribution to the Sustainable Development Goals

Initiatives of this type, implemented in developing countries, empowering local communities and focusing on women, have a clear contribution to the Sustainable Development Goals, 2030 Agenda. They use SDG 13 (Action for Climate) as vehicle for channeling the contribution to other SDGs such as Gender Equality (SDG 5), Poverty Reduction (SDG 1), Clean Water (SDG 6) or Decent work and economic growth (SDG 8), among others.

The world production of plastic has multiplied by 20 since the 60s, reaching 322 million tons in 2015, and is expected to exceed 600 million in 2030. Most of the plastic waste in the world ends in the sea. Greenpeace claims that plastic waste kills approximately 100,000 marine mammals every year, as well as millions of birds and fish. Therefore, we need more creative and innovative initiatives that are capable of combining mitigation and adaptation to climate change. We need additional efforts to decarbonize our economy while creating opportunities for sustainable growth.

Combating tax evasion will help finance sustainable development in Latin America

Increasing public revenues is key to supporting the mobilization of resources with which to finance the 2030 Agenda, as indicated in the last Fiscal Panorama of Latin America and the Caribbean 2019, carried out by the Economic Commission for Latin America and the Caribbean.

The report analyzes the evolution of fiscal policies and their challenges and stresses that, now more than ever, it is necessary to address the high level of tax non-compliance and illicit financial flows in the region.

According to the research, the regional cost of tax evasion and avoidance reached 6.3% of the gross domestic product (GDP) in 2017, which is equivalent to 335,000 million dollars.

Tax policy has become more relevant as a tool to drive progress towards compliance with the 2030 Agenda for Sustainable Development, since it not only has an impact on the level of available resources, but on multiple dimensions of the Sustainable Development Goals as inequality, poverty, and the well-being of women, the elderly, young people and other vulnerable populations.

Five instruments are proposed to expand fiscal space and enhance the 2030 Agenda:

-Reduce tax evasion and illicit financial flows

-Improve the adoption of taxes to the digital economy

-Creating environmental taxes to advance towards the decarbonization of the economy and the productive reconversion

-Revaluate tax expenditures

-Force personal income tax and property taxes

In addition, ECLAC recommends five areas of public spending and investment:

-Politics of labor and social inclusion

-Measures that promote the use of innovative technologies in energy, mobility, communication and bioeconomy

-Programs for progress towards budgetary systems that encourage priority public investment through pro-investment accounting frameworks

-The establishment of public-private agreements for infrastructure and renewable energy

-The redesign of tax incentives for industrial policies

You can download the report here

UN Report: Human health in dire straits if urgent actions are not made to protect the environment

The UN has published an assessment on the state of the environment. Sixth Global Environmental Outlook (GEO-6) offers a rigorous analysis of our prospects for a healthy future and warning that ecological damage to the planet is becoming so dire that millions of lives will soon be at risk unless urgent action is taken.

According to the sixth Global Environmental Outlook, the world has the science, technology and finance it needs to move towards a more sustainable development pathway, although sufficient support is still missing from the public, business and political leaders who are clinging to outdated production and development models.

The projection of a future healthy planet with healthy people is based on a new way of thinking where the ‘grow now, clean up after’ model is changed to a near-zero-waste economy by 2050. According to the Outlook, green investment of 2 per cent of countries’ GDP would deliver long-term growth as high as we presently projected but with fewer impacts from climate change, water scarcity and loss of ecosystems.

At present the world is not on track to meet the SDGs by 2030 or 2050. Urgent action is required now as any delay in climate action increases the cost of achieving the goals of the Paris Agreement, or reversing our progress and at some point, will make them impossible.

The report advises adopting less-meat intensive diets, and reducing food waste in both developed and developing countries, would reduce the need to increase food production by 50% to feed the projected 9-10 billion people on the planet in 2050. At present, 33 per cent of global edible food is wasted, and 56 per cent of waste happens in industrialized countries, the report states.

While urbanization is happening at an unprecedented level globally, the report says it can present an opportunity to increase citizens’ well-being while decreasing their environmental footprint through improved governance, land-use planning and green infrastructure. Furthermore, strategic investment in rural areas would reduce pressure for people to migrate.

Policy interventions that address entire systems – such as energy, food, and waste – rather than individual issues, such as water pollution, can be much more effective, according to the authors.  For example, a stable climate and clean air are interlinked; the climate mitigation actions for achieving the Paris Agreement targets would cost about US$ 22 trillion, but the combined health benefits from reduced air pollution could amount to an additional US$ 54 trillion.

You can download the report here

UN DESA’s World Youth Report explores the role of youth in the implementation of the 2030 Agenda for Sustainable Development

The UN Department of Economic and Social Affairs (DESA) has published a report that explores the role of youth in the implementation of the 2030 Agenda for Sustainable Development called ‘World Youth Report: Youth and the 2030 Agenda for Sustainable Development’.

“We have come here to let [world leaders] know that change is coming whether they like it or not,” was probably the most quoted sentence coming from the recent COP 24 climate conference. It was not uttered by the UN Secretary-General nor by any of the Heads of State and Government, but by a 15-year-old from Sweden, Greta Thunberg, who had sparked a powerful global movement of school strikes for climate action.

Her words are representative of the attitudes of today’s young generation. A recent study, conducted in 15 countries worldwide, found that globally, young people are more optimistic about the future than older generations. Despite facing much higher unemployment rates, more instability and lower wages than their predecessors, today’s youth are entering adulthood confident that they can build a better future for themselves and for those that follow.

Case studies from all corners of the world, gathered by the World Youth Report, seem to justify young people’s optimism. From a youth movement driving climate action across the Arab region to an organization expanding digital literacy among young people in rural Philippines.

Sadly, today’s young generation continues to be left behind when it comes to education and employment. According to the World Youth Report, one in four people of secondary-school age are not enrolled in a school and less than half of all young people are participating in the labour market. And even among those that do have a job, one in six live in extreme poverty.

These numbers are more than mere statistics – they stand for squandered potential of millions of people whose capabilities and enthusiasm could have greatly accelerated our progress towards the Sustainable Development Goals.

Ensuring access to inclusive, quality education is essential for young people’s chances of finding decent work. Quality primary and secondary education are not enough. They should be complemented by affordable technical, vocational and tertiary education that provides youth with relevant skills for employment and entrepreneurship.

You can download the report here