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Managing carbon markets : lessons from commodity markets 25/11/2010 Workshop - Graz. 1. The link between energy and CO 2 prices. The link between energy and CO 2 prices. Price index (base 100, 2008). Source: CDC Climat Recherche, Reuters. - PowerPoint PPT Presentation
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1
Managing carbon markets : lessons from commodity
markets
25/11/2010
Workshop - Graz
2
1. The link between energy and CO2 prices
3
The link between energy and CO2 prices
► Price index (base 100, 2008)
Source: CDC Climat Recherche, Reuters
4
Economic activity:Combustion sector as a decisive sector
Source : CDC Climat Recherche, CITL
Netherland4%
Rép. Tchèque4%
France7%Spain
8%Poland10%
Italy11%
UK11%
Germany20%
Roumania4%
Greece3%
Belgium3%
Bulgaria2%
Allocation 2008*
Combustion65%
Glass1%
Coke ovens1% Refineries
8%
Metal ore1%
Iron and steel10%
Ceramics1%
Cement11%
Paper and board2%
► Allocation by country ► Allocation by sectors
5
Economic activity:Emission to cap by EU ETS sectors
Source : CDC Climat Recherche, CITL
► Emission to cap by sectors
6
2. Carbon pricing fundamentals
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2. Carbon pricing fundamentals
► Price = function of EUA supply and demand ■ Supply = policy decisions ■ Demand = actual emissions / energy demand
1. Weather conditions
2. Electricity price
3. Relative energy prices
4. Economic growth
5. Regulatory decisions
Short run
Long run
CO2 price
Energy demand
8
2.1 Weather conditions: Temperature
Source: CDC Climat, BlueNext Weather Index
9
2.1 Weather conditions: Precipitation & reservors’levels
►Cold and dry weather in the Nordic region has reduced the level of dams: Norway (68%), Finland (59%) and Sweden (67,7%)
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2.2 Power production and prices: Impact on Nordic electricity forward price
►More than 50 % of electricity generated in the Nordic region come from Hydroelectric power stations.
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2.2 Power production and prices: EU power production up…
Source: AIE, Monthly Electricity Statistics, August 2010, OECD Europe
► +2,7% since beginning of 2010
■ EU : 222,8 TWh, between January and August 2010…
■ - 3% compared to 2008
■ Germany: +5,1%■ France: +3,6%■ Poland:+4%■ Spain: +1,8 %
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2.2 Power production and prices: … including renewable-based power production
► +110 TWh since beginning of 2010► +14,6 % compared to 2009
Source: AIE, Monthly Electricity Statistics, August 2010, OECD Europe
■ France: +41%
■ Poland: +41%
■ Italy:+23%
■ Portugal: +38%
■ UK: +3%
13
L’ambition du groupe Caisse des Dépôts (PD)
2.3 Relative energy pricesEnergy & CO2 markets
Source: CDC Climat Research, Reuters
14
L’ambition du groupe Caisse des Dépôts (PD)
2.3 Relative energy prices:German Clean Dark & Sparks spread
► CO2 price change the merit order between gas and coal power station.
► The relative raise in coal price and gas price has entailed a drop of the clean dark and spark spread
Source: CDC Climat Research, Reuters
15
2.4 Economic activity:Focus on the EU ETS
►Uneven and often quite low economic recovery:■ Among member states■ Among industrial sectors
Source: CDC Climat Research, Reuters
16
2.4 Economic activity:Detail for EU ETS sectors
Source: CDC Climat Research, Eurostat
17
3. Structure of CO2 markets
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3.1 OTC vs exchange volume
2010 (jusqu'à fin octobre): 4 101 Mt
0
200
400
600
800
1000
1200
1400
1600
1800
T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3
2005 2006 2007 2008 2009 2010
Mil
lio
ns
Volumes de gré à gré Volumes de places de marché
2005: 262 Mt
2006: 809 Mt
2007: 1 455 Mt
2008: 2 713 Mt
2009: 4 952 Mt
Source: CDC Climat Research, Point carbon► Boom in EUA trades: *5 compared to 2006 ► Seasonality in T2 for compliance ► Financial crisis: more trades in stock exchange than in OTC
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3.2 Spot vs Futures
Source: BlueNext, NordPool, EEX,
0
100
200
300
400
500
600
700
janv.-08
févr.-08
mars-08
avr.-08
mai-08
juin-08
juil.-08
août-08
sept.-08
oct.-08
nov.-08
déc.-08
janv.-09
févr.-09
mars-09
avr.-09
mai-09
juin-09
juil.-09
août-09
sept.-09
oct.-09
nov.-09
déc.-09
janv.-10
févr.-10
mars-10
avr.-10
mai-10
juin-10
juil.-10
août-10
sept.-10
oct.-10
Millions
Spot Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13
► EUA market is becoming more mature and sophisticated ► Futures markets in boom compared to a drop in exchange in the
spot market
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4. Volatility and price term structure
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4.1 A medium volatility in the commodities’ family
► Coal has a smaller volatility than others► Starting 2011, the volatility might become higher because of hedging strategies of power generators.
Source: CDC Climat recherche, Reuters
22
4.2 EUA & CER price term structure
10,00
10,50
11,00
11,50
12,00
12,50
13,00
13,50
14,00
déc.-2010 déc.-2011 déc.-2012
€/t
Trimestre 1 Trimestre 3 octobre
EUA price■ Corridor between 14 et 17 €/t
since June ■ Contango
► EUA price term structure
CER price ► 12 à 14 €/t since
June► Backwardation
► CER price term structure
23
5. Institutional environment
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5.1 The strong importance of regulatory decisions
► Cap for 2013: 2 039 MtCO2► EU target -20 % or -30 % ?► Phase III auctions ► Allocation benchmarks► Qualitative restrictions (HFC, N20)► Post-Kyoto uncertainties
25
5.2 EUA price forecast
► Average price forecast is from 24,5 €/t in 2012 and 30,3 €/t in 2020.
0
5
10
15
20
25
30
35
40
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
€/t
Spot EUA BlueNext Moyenne Moyenne + écart-type Moyenne - écart-type
29,6 €/t
19,3 €/t17,9 €/t
13,9 €/t
24,5 €/t15,9 €/t
37,7 €/t
30,3 €/t
22,8 €/t
Source: CDC Climat Research, Reuters