CAKE at the CASE research workshop

On October 18, Robert Jeszke – the CEO of the CAKE, participated in a research workshop organized by the Center for Social and Economic Research (CASE) entitled “Taxes and the European Green Deal”, where he presented the key changes in the EU ETS due to planned implementation of the Fit for 55 package and took part in a panel on decarbonisation of transport, buildings and agriculture. One of the most important elements of the Fit for 55 package will be, among others. implementation of the CBAM border tax.

During the panel, which was based on a questioning session for participants, Robert Jeszke stated that:

• Speculation is an indispensable element of any market (not only CO2) and affects its liquidity. Greater activity of investment funds causes market fluctuations and may create a potential price bubble against which the CO2 allowances market is not adequately safeguarded. EUA prices are about to rise in the long-term, but sudden EUA price spikes in the short-term should be avoided. If we assume that a bubble is forming on the market, which will burst at some point, it will be very negative, especially for installations with the EU ETS. That is why it is so important to have a safeguard measures to stabilize prices.

• The energy transition has its logic because the whole world is striving for climate neutrality. This is an element of changing the EU market position, which will change the world for the better through innovation and the use of new technologies. This approach requires deep electrification of all branches of the economy. For this you will need some funds and an appropriate vision of their management. The effectiveness of these solutions depends on it.

Mechanisms to protect against formation of price bubble in EU ETS

On October 13, 2021, Robert Jeszke and Sebastian Lizak wrote a scientific article entitled “Reflections on the Mechanisms to Protect Against Formation of Price Bubble in the EU ETS Market“ The article is available on Sciendo.

The purpose of article is to examine whether the current legislative rules of the EU ETS protect against sudden EUA  price  fluctuation  and  the  risk  of  formation  of  a  price  bubble.  This  paper  tries  to  assess  the  potential  EUA  price bubble and to review of existing instruments within the EU ETS, analysing their efficiency using different assumptions and identify channels of possible other market instruments to efficiently prevent the carbon market instability  caused  by  rising  EUA  prices  and  market  speculation.  Authors  argue  that  the  European  Commission  does  not  currently  have  an  appropriate  market  instrument  to  respond  to  the  EUA  price  fluctuation.  Moreover,  there are some legislative loopholes in the system, which may encourage market speculators to influence EUA prices, and there is need to introduce better market safeguards.

There is no doubt that EUA prices are currently rising too high and too fast, making the EU ETS market extremely volatile. On one hand, this is unfavourable for EU ETS compliance entities, but on the other hand, it greatly benefits speculators, for whom extreme volatility means more money. The question is whether we really want to feed the speculators volatile EUA prices or whether we should instead strive to stabilise them. Participants in EU ETS compliance should receive some type of guarantee that when an extreme situation occurs in the market the EC has a transparent mechanism that can be triggered. Such a ‘safety valve’ would be indispensable for stabilising EU ETS participants, contributing to better planning of future investments. It seems that the European Commission currently has no such effective tools for stabilising prices. The mechanism in Art. 29a of the EU ETS Directive – which allows for 100 million allowances to be released from the Market Stability Reserve and auctioned in case of a sudden increase in EUA prices – cannot be called such a tool. It is practically impossible to trigger, given the current structure and problems with interpreting the provision. The next Market Stability Reserve review could be a great opportunity to introduce a price stabilising mechanism. One of the elements that should be considered is the possibility of opting out of EUA cancellation in the Market Stability Reserve after 2023 (an ‘invalidation mechanism’). These allowances may become valuable assets in the future when the market situation changes drastically and intervention is required. Among other solutions proposed by the authors are, e.g, faster functioning of the art. 29a of the EU ETS Directive mechanism, limiting the possibility of buying EUA’s by non-compliance entities, or introducing a special tax on transactions for speculators.

The article is available: DOI: https://doi.org/10.2478/oszn-2021-0005

CAKE at the “eCO2nference”!

On October 7, 2021, Robert Jeszke – Head of the Centre for Climate and Energy analyses (CAKE) had an opportunity to particpate in the “eCO2nference” which was organized organised by the H2020 research project BioRECO2VER and PKN Orlen.

Robert Jeszke was one of the speaker in the panel discussion entitled: “Opportunities and barriers for the development of CCU from a technical, political and social point of view in the world, in Europe and in Poland”. In the debate there were a varius exchange of views presented by stakeholders from different backgrounds:  Arkadiusz Majoch (PKN ORLEN SA), Paweł Sałek (Advisor to the President of RR and Chairman for Environment, Energy and Natural Resources at the President of the Republic of Poland), Anastasios Perimenis (CO2ValueEurope), Heleen De Wever (VITO), Krzysztof Bolesta (DGEnergy, European Commission) and Christopher vom Berg (nova-Institut GmbH).

Robert Jeszke, during his speech underlined that also analyzes provided by the Centre for Climate and Energy Analysis (CAKE) shows that the development of new technologies such as  CCS, BECCS and CCU are pivotal in order to achieve the goal of climate neutrality by 2050.

Thank you very much for the invitation and the opportunity to contribute to this interesting debate!

CAKE at the Carbon Forward 2021 Conference!

On the 6th of October Robert Jeszke – Head of the Centre for Climate and Energy Analysis (CAKE) took part in the a panel discussion entitled “EUETS reform prospects: higher ambition, new sectors”.

The discussion was moderated by Mark Lewis (Head of Climate Research, Andurand Capital Management LLP) and focused on the proposed reform of the EUETS with special attention to the current situation on the EUA market. It was a great opportunity to exchange views on the proposed package’s EUETS reform proposals with distinguished speakers: BeatriceYordi (Directorate-General for Climate Action, European Commission), Peter Liese (MEP, ENVI, European Parliament) and Sabine Frank (Carbon Market Watch).

During  the panel discussion Robert Jeszke (CAKE/KOBiZE) presented and share key views in relation to the increase of the prices in the EUETS:

• “EUA price have been already growing rapidly approx. 160% since November 2020 to 60 EUR. It shows that EUA’s price rising far too high and too fast causing possible risk of forming a price bubble.”

• “Due to the rising prices on the EUETS market and high probability that this trend will be constant in the near future driving by Fitfor55 & growing energy commodities (e.g. gas) & speculators – EUETS needs a market safeguard to stabilise EUA prices.”

• “Good idea is to use MSR potential. We can not afford to cancel EUA from 2023 (under the so called “invalidation mechanism”) because we may need these allowances to stabilise market in near future (when e.g. EUA reaching 200 EUR in a year or two – and it is still possible).”

• “EUCommission can introduce transaction limits or a transaction tax for financial entities (in order to curb speculation) or reforming the mechanism of art. 29a, so that it could work faster (e.g. as it is currently in the UKETS or proposed in new ETS for transport & building sector).”

• “We have to avoid highest threat – fast EUA price growth driving by speculators which causes that price of EUA allowances will be detached from reality. The marginal cost in EUETS should be a proper cost pay by EUETS participants.”

• “We need EUETS for years to come and it must be sustainable, balanced and do what it was designed to do – reduce GHG emissions at lowest cost. It should be ‘cap & trade’ not ‘hit and run’, without anyone blaming for future failure”.                                                                                                                                                                                                                                                                                 

Thank you Carbon Forward for invitation and we are looking forward for future debates!

CAKE at the III Debate organized by the Polish Chamber of Chemical Industry

On September 23, 2021 at the Third Debate organized by the Polish Chamber of Chemical Industry in the framework of the Polish Chemistry 2021 Campaign, entitled „Fit for 55 package and its impact on the Polish Chemistry”, Robert Jeszke the CEO of the Centre for Climate and Energy Analysis (CAKE), KOBiZE/IOŚ-PIB took part in the panel discussion moderated by the Barbara Rajkowska (IOŚ-PIB) on the challenges arising from the European Green Deal and it’s consequences for the economy.

Robert Jeszke presented important conclusions related to the impact of the new package of proposals and to the revision of the EU ETS directive, wchich would affect the possibilities and the pace of the transformation in Poland:

• He underlined that achievement of climate neutrality would be a challenge for Poland and would require high investment effort, as well as introduction of the reduction mechanisms in all the sectors of the economy, inlcuding not only in the industry and energy, but also in the households according to the proposals on the introduction of the ETS in the transport and building sectors;
• In relations to the rising price of the emission allowances, he pointed out that in the view of 2030 perspective it is real that the price of  allowances will reach a level of 100 euro, as also CAKE analyses show;
• He pointed out, that apart from the requirements and emission reduction targets – the Fit for 55 package – is followed by number of the financial solutions, and that the opportunities which will be available should be used in particular with focus and plan for the development of the role for new technologies, which would have the gratest contribution to the transformation of the economy;
• He indicated also the results of the modelling analyses made by CAKE, where one of the key elements would be the pace of the development of the reduction technologies i.e. BECCS, CCS, or CCU, which are currently only in the pilot phase, but without their development the climate neutrality can not be achieved.

More about this event you can find at: https://www.pipc.org.pl/aktualnosci/polska-chemia-gotowa-na-fit-for-55,p49192545

The recording is available here: https://www.youtube.com/watch?v=veFnJkUfDeQ