Vertis Poland – within reach

Vertis brings its award winning services closer to you and opens its first office in Warsaw, Poland. Regulatory and market information about the EU ETS get within reach. We expect to tighten our relationship with our clients in Poland further.

Get an appointment and visit us at ul. Postępu 14, 02-676 Warsaw, Poland or call us at +48 22 307 8065.

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EUA Dec17: The weakest performer of the energy commodities in 1H2017

EUA price development

In 2017 and in 2016, the benchmark carbon contract had a similar start to the year. As auction volumes were not cut by back-loading anymore, January started with steep losses and the price fell to 4.62 euro. The price then stabilized near the 5 euro level and rallied at the end of February when the European Parliament and the Council elaborated their positions on the reform of the EU ETS and both were more ambitious than the European Commission. The benchmark contract hit a local high at 6.02 euro 2 March, a level not seen since then. The price was declining continuously until mid-May when it hit a 2017 low at 4.29 euro. Hopes on progress at the second trialogue meeting about the reform of the ETS and forecast about a very hot June lifted the price back above 5 euro by the end of the month of May. The price however got under pressure in June, after the cancelled second trialogue meeting. All in all, the price lost 23.4% in the first half of the year which might seem shocking at first sight, but is still a better performance than in 2016 when the benchmark contract almost halved its price by falling from 8.29 euro end of 2015 to 4.47 euro by the end of June 2016. The volume weighted average price of the EUA Dec17 was 5.00 euro in 1H2017. Less than 1.5 billion allowances traded in the December contract, a decline of 28.2% from 1H2016. And while the open interest of the EUA Dec16 stood at 529,063 end of June 2016, the open interest of the EUA Dec17 was 425,273 on the last day of June 2017 (-14.5% y/y).

Energy fundamentals

The EUA was the worst performing instrument in the first half of the year within the energy mix. While the EUA Dec17 lost 23.4% in the first six months of the year, the German front year power was stable (+2.2%), the European 2018 coal contract appreciated by 1.9% and the UK first season gas price dropped by 3.9%. Brent was the only commodity in the energy mix that fell significantly in the first half of the year, as the OPEC agreement was not enough to restore the balance in this oversupplied market. Source: Bloomberg, ICE

Data indicate urgent need for reform of the EU ETS

After several rounds of meetings, discussions and votes the European Parliament and the Council elaborated their positions on the reform of the EU ETS. Both institutions showed willingness to increase the ambition of the reforms as they support increasing the linear reduction factor to 2.2% and would keep it under review to increase it during phase 4. There seems to be a broad agreement also about doubling the intake rate of the market stability reserve to 24% in the first 4-5 years of its operation to pump out the surplus from the market as soon as possible. They also proposed the cancellation of millions of allowances, a new idea compared to the original reform suggestions of the Commission. There is however still disaccord about the free allocation, the carbon leakage protection and the use of the different funds. The legislators try to consolidate their amendment proposals in trilogue negotiations. The next meeting takes place 10 July and the Estonian presidency of the Council calculates with several other meetings to finish the file in 2017. Negotiations are led by a new rapporteur, Julie Girling who took over from Ian Duncan as latter was busy with his campaign in the UK general elections. Complying with its obligations, the European Commission published in May the total number of allowances in circulation. According to this, there are 1.69 billion allowances available in the system, meaning that even with a withdrawal rate of 24% it would take years for the market stability reserve to make this surplus disappear. The Commission also informed that verified emissions of the stationary installations in the EU ETS fell by 2.7% in 2016. The emissions of aircraft operators, on the other hand increased by 7.9% in a yearly comparison. Due to one erroneous verified emissions figure it seemed at first sight that emissions were reduced more significantly, but the data were corrected shortly and they revealed that the surplus is still huge. Source: Bloomberg, ICE, Vertis Ltd.

Summer outlook: Relaxing on the 5 euro level

While June was characterized by above seasonal average temperatures (and therefore higher air-conditioning use and higher power prices), July temperatures are forecast to be in line with the seasonal average with some colder days. Any additional power demand can be covered comfortably by renewable output. As the most recent data showed, Germany increased its renewable power production to a record 35.1% in the first half of the year. This can keep a cap on the CO2 price in the next period. The halved auction supply in August and the probably accelerating political negotiations about the reform of the system however could support the price. Historically the EUA price tends to remain stable during summer months. Source: Bloomberg, ICE

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Save the date: 6th July talk by Paul Bodnar, Rocky Mountain Institute

On 6th July we are holding the next event in our series of talks. Paul Bodnar, Managing Director of the Rocky Mountain Institute and former director for energy and climate change in the White House, will give a talk on “the Cotton Candy Approach” to climate action – how you make something from nothing. Topics will include the making of the Paris Agreement and how the people of the US are now making Paris happen without Donald Trump.

There are limited spaces so please contact us if you are interested in attending.

About Paul Bodnar

Paul is one of the leading figures in international climate diplomacy, most recently masterminding the We Are Still In movement in the USA where over 1,000 organisations – states, cities, institutions and companies – committed to meet the US’s commitment under the Paris Agreement after Donald Trump announced his intention to withdraw from the Agreement.

Currently a Managing Director at the Rocky Mountain Institute, Paul previously served in the Obama administration as special assistant to the president and senior director for energy and climate change at the National Security Council. He played a principal role in formulating U.S. strategy for the Paris Climate Conference.

Paul’s career in climate started here in Budapest as a co-founder of Vertis.

Cotton candy approach to turning ideas into reality

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Preparing for MiFID II

From January 2018 a new regime of EU financial regulation comes into force called MiFID II. In a small, dark corner of this regulation, the EUA becomes classified as a financial instrument. This means that dealing in EUAs – trading, broking or even advising on them – becomes a regulated activity.

Intermediaries like Vertis have to become investment providers, supervised by their financial authority – national bank or ministry of finance, depending on country.Over the last three years we have been steadily preparing for MiFID and have invested heavily in new IT systems and equipment, security, new policies and procedures, and in training for our sales and back-office people. We have now submitted our application to the Hungarian National Bank. Although this is just the beginning it is an important milestone in becoming an investment service provider.

Companies which buy EUAs for compliance purpose or for hedging are exempt from most of the regulation. If you are operating an installation you are probably safe from the financial inspectors!

However, MiFID will have some implications for you. First, you will need to obtain an LEI number – a unique identifier for legal entities engaged in financial markets. If you do not already have one, ask your trader for more information.

Second, companies like Vertis will be asking you for more information about your business so that we can comply with our own obligations in categorising our clients. We apologise in advance for this!

Third, we might need to change some of the terms of our framework agreement or trading agreements, and ask for your patience in this.

Finally, the new regulatory regime should make trading safer and more transparent – it is there primarily to protect the interests of you, the consumers. Meanwhile it is business as usual and we aim to make a smooth transition.

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(Polski) Ceny EUA nadal blisko 5.00

Sorry, this entry is only available in Polski.

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