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Environmental Newsletter | January 2022 |  |
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| | | Greetings from Leipzig,
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| Although 2022 is already 3 weeks old, firstly I’d like to take the opportunity to wish you all a “Happy New Year”. I think there’s certainly one thing we can all agree on – when it comes to the Emissions market, 2021 was a year that we will remember for many years to come. Extreme volatility saw huge movements in the market with prices increasing day after day. From a fundamental perspective, the global gas shortage and skyrocketing energy prices as well as a switch back to coal this winter were the main drivers for the steep increases seen in the Emissions market. Further to this, 2021 was also the year where Emissions trading and financing became a topic of global interest with many countries announcing their intention to scale up their climate target ambitions.
In terms of volumes, EEX Group’s environmental markets posted significant increases throughout 2021, both in Europe and in North America. In Europe, our markets increased by 26% to 1,660.4 million tonnes of CO₂ with both the Spot (+29%) and Derivatives (+22%) markets reporting double-digit growth. While in North America, our markets continued their positive development and increased by 125% to 248,944 contracts.
In terms of key milestones achieved, it was also a busy year for us. In March, the first ever auction for the New Zealand ETS was held which is jointly operated by the New Zealand Exchange (NZX) and EEX. Taking place on a quarterly basis, the NZ ETS has firmly established itself as an integral element of today’s global carbon market and is a great example of EEX’ commitment to support the development of carbon markets worldwide. Then in July, we continued to champion the move for further decarbonization in the shipping industry through the launch of the Zero Carbon Freight Index (ZCFI) which enables players to see, for the first time, how the cost of carbon emissions could affect freight prices in real terms.
Another milestone was of course the introduction of the German national emissions trading system (nEHS). Despite some initial “teething problems”, I’m happy to report that the first nEHS sale took place via the EEX platform in early October with more than 285 million nEHS certificates sold by year end.
Turning our attention to the year ahead – as you may have seen in the press, we have announced our intention to enter the Voluntary Carbon market in 2022. This is something we have been working on “in the background” for some time now so I’m very happy that the news is finally out there! As a first step, EEX Group have joined forces with Net Zero Markets (NZM) and Air Carbon Exchange (ACX) to list a Global Emission Reduction (GER®) contract. The GER® contract is planned to be listed on both EEX and Nodal Exchange, enabling customers in multiple time zones to access the Voluntary Carbon Market. More info on our VCM roadmap can be found in this newsletter.
One thing is for certain, 2022 is already shaping up to be another exciting year – watch this space!
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| Until next time,
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| Steffen Köhler
| COO | EEX
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| First step into Voluntary Carbon Markets | | As you may have seen in the press recently, EEX Group has announced its intention to enter into the Voluntary Carbon Market. “Net zero” emissions by 2050 is a goal that needs to be achieved when it comes to fighting climate change and which requires change by the entire economy. EEX Group is committed to contributing to that change.
To reach the “net-zero goal”, companies do not only need to decarbonize but also compensate and increasingly neutralize their emissions. Robust, trustful, and secure Voluntary Carbon Markets are therefore needed to allow offsetting emissions by purchasing carbon credits.
Voluntary Carbon Markets allow carbon emitters to offset their emissions by purchasing carbon credits emitted by projects targeted at removing or reducing greenhouse gas from the atmosphere.
With more than 15 years' experience in operating spot and derivatives markets within the European Emissions Trading Scheme (EU ETS), the first emissions trading scheme in the world, EEX Group is an experienced partner when it comes to operating successful emissions markets.
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| | ECC improves EUA as margin credit model | | European Commodity Clearing (ECC) accepts EU Allowances (EUAs) as margin credit. ECC will improve this as of February 2022. Through changes to the model, ECC waives the current minimum holding period of 105 days before deposited EUAs become eligible margin credits. After signing up and approval by the respective Clearing Member, all EUAs transferred to a dedicated ECC Collateral Registry Account will be treated as margin credits. Subject to approval and configuration by the respective Clearing Member, the EUAs can be used as collateral margin credits to offset margin requirements for Initial Margin Spot Markets (power, gas, emissions) and/or Initial Margin Derivatives (net short positions in EUA Futures). Further details on EUA as Margin Credit and the setup procedure are provided in the respective ECC Clearing Circular.
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| | Introduction of German national emissions trading system (nEHS) in 2021 | | In 2021, Germany introduced a national emissions trading system (“nEHS”) which covers emissions from the heat and transport sector. The nEHS works in addition to the European emissions trading system (EU ETS), which is operational since 2005 and covers emissions from industries, power plants and aviation. Obligated parties of the nEHS, e.g. companies that distribute fuels on the market, are obligated to purchase and surrender nEHS certificates under the Fuel Emissions Trading Act (Brennstoffemissionshandelsgesetz, “BEHG”).
The German nEHS has started with a fixed price phase which will span until 2025, with prices increasing as follows: 2021: 25 EUR, 2022: 30 EUR, 2023: 35 EUR, 2024: 45 EUR, 2025: 55 EUR. After that, a flexible price phase will follow.
EEX has been awarded the contract to operate the sales platform of the nEHS by the German Environment Agency. The obligated parties can choose either between direct membership at EEX or purchasing nEHS certificates through an intermediary. On October 5, 2021 the first nEHS sale took place at EEX. In 2021, a total of 287.4 million nEHS certificates have been sold. Certificates to cover emissions in 2021 need to be surrendered by 30 September 2022. Until 22 September 2022, companies can still purchase nEHS certificates with vintage 2021 in a magnitude of up to 10% of the quantity held in their compliance account on 31 December 2021. The last sales date in 2022 for nEHS certificates with vintage 2022 will presumably take place on 8 December 2022.The sales dates, which take place twice a week, have re-started on January 11th for both the 2021 and 2022 vintages.
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| | Environmental markets on Nodal Exchange hit new records in 2021 | | The numbers tell the story. Environmental markets on Nodal Exchange hit a record volume in 2021 of 248,944 contracts, up 125% from 110,471 a year earlier.
Total open interest at the end of 2021 was 170,770, up 94% from 87,816 in 2021. Open interest topped the prior month's level 10 out of 12 months last year as well, with open interest across the REC group of products topping the 150k level, hitting 152,763 contacts at the end of 2021, up 83% from 83,471 a year earlier. Broken down further by registry, PJM-related REC open interest ended 2021 at 98,244 contracts, up 75% from 56,102 a year earlier and topped the 100,000 mark in January 2022.
One segment of RECs that helped drive volumes was the innovative voluntary REC products.
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E-world: EEX Group to exhibit in June
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| Following an announcement from the E-world organisers, EEX Group has decided to postpone its appearance at E-world 2022 until June 21-23.
We have made this decision in the hope that the situation surrounding COVID-19 will improve by the summer, giving us a much higher chance of seeing you all in person at our stand!
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EEX Group Online Trading calendar
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| EEX Group is now offering an online version of its trading calendars for the various product suites in ICS format which can be imported directly into your respective calendar programme.
To download the calendars as ICS-files and import them into your diary, please click the relevant link (below)
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EU ETS: German auction contract extended
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| The German Environment Agency has made use of the contractual extension option, therefore prolonging the term for the German auction platform by two years, until January 4, 2024.
Until now, EEX successfully carried out about 700 auctions for the Federal Republic of Germany.
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