1 00:00:00,120 --> 00:00:02,920 Speaker 1: Hi, this is Dana Perkins and you're listening to Switch 2 00:00:02,960 --> 00:00:06,360 Speaker 1: It on the B n F podcast. Today we're talking 3 00:00:06,400 --> 00:00:10,560 Speaker 1: about carbon trading, the European Union Emissions Trading System or 4 00:00:10,640 --> 00:00:13,200 Speaker 1: EU e t S for short, and many would say 5 00:00:13,240 --> 00:00:16,040 Speaker 1: that it has been an effective tool in bringing European 6 00:00:16,079 --> 00:00:19,360 Speaker 1: carbon emissions down. Now, recently there were changes to the 7 00:00:19,400 --> 00:00:22,560 Speaker 1: system in response to Fit for fifty five, which is 8 00:00:22,560 --> 00:00:25,520 Speaker 1: the EU Climate and Energy legislation designed to support the 9 00:00:25,520 --> 00:00:28,560 Speaker 1: block's pledge to cut greenhouse gas emissions by at least 10 00:00:28,560 --> 00:00:34,159 Speaker 1: fifty five percent when compared with levels. So if you're 11 00:00:34,159 --> 00:00:36,680 Speaker 1: looking to get up to speed on how compliance markets 12 00:00:36,680 --> 00:00:38,920 Speaker 1: like the EU e t S work and what Fit 13 00:00:39,000 --> 00:00:42,479 Speaker 1: for fifty five is, well, today is for you. We 14 00:00:42,520 --> 00:00:45,640 Speaker 1: speak with Bo Chin and Emma Cocher, who both focus 15 00:00:45,720 --> 00:00:49,320 Speaker 1: on carbon markets at B and F Compliance. Carbon markets 16 00:00:49,320 --> 00:00:51,440 Speaker 1: have come in and out of vogue, if you will, 17 00:00:51,920 --> 00:00:54,520 Speaker 1: and there have been years where the carbon price fluctuated 18 00:00:54,760 --> 00:00:57,240 Speaker 1: very little. As a result, many people thought of it 19 00:00:57,320 --> 00:01:00,720 Speaker 1: as more of a carbon tax. But today not only 20 00:01:01,040 --> 00:01:03,160 Speaker 1: does it really impact the companies that are paying for 21 00:01:03,200 --> 00:01:06,120 Speaker 1: the credits, but there is a growing trader community which 22 00:01:06,160 --> 00:01:10,520 Speaker 1: is closely watching and trading against these fluctuations. So while 23 00:01:10,640 --> 00:01:14,039 Speaker 1: Article six and Cup twenty six last year brought carbon 24 00:01:14,120 --> 00:01:17,120 Speaker 1: markets back into focus for some of the world, those 25 00:01:17,160 --> 00:01:19,600 Speaker 1: of us in Europe, well, we're just continuing with something 26 00:01:19,640 --> 00:01:22,800 Speaker 1: that was started way back in two thousand five. So 27 00:01:22,920 --> 00:01:24,839 Speaker 1: I guess I asked the question, are you a carbon 28 00:01:24,880 --> 00:01:28,440 Speaker 1: nuby or veteran? BENFS Carbon Research can be found for 29 00:01:28,480 --> 00:01:31,560 Speaker 1: subscribers at BENF on the Bloomberg terminal, on BNF dot 30 00:01:31,560 --> 00:01:35,679 Speaker 1: com or on our mobile app. Speaking of subscribers, if 31 00:01:35,680 --> 00:01:37,600 Speaker 1: you'd like to be aware of when we release new 32 00:01:37,640 --> 00:01:41,480 Speaker 1: podcasts on Switched On focused on energy, transport and sustainability, 33 00:01:41,840 --> 00:01:44,920 Speaker 1: just make sure to subscribe on whatever podcast player you're 34 00:01:44,920 --> 00:01:47,720 Speaker 1: listening to us on now. And as a reminder, B 35 00:01:47,840 --> 00:01:50,600 Speaker 1: and EF does not provide investment or strategy advice, and 36 00:01:50,640 --> 00:01:53,400 Speaker 1: we have a complete disclaimer at the end of the show. 37 00:01:54,160 --> 00:01:56,880 Speaker 1: But now let's speak with Bow and Emma about carbon 38 00:01:56,920 --> 00:02:04,400 Speaker 1: markets and fit for fifty five. Thank you both for 39 00:02:04,440 --> 00:02:07,320 Speaker 1: coming on the show today. Boh welcome, Thank you, Dana, 40 00:02:07,680 --> 00:02:10,280 Speaker 1: great to be here, and Emma, thank you, Danna, great 41 00:02:10,320 --> 00:02:12,760 Speaker 1: to be here. Alds. So we are here to talk 42 00:02:12,840 --> 00:02:15,079 Speaker 1: about well, probably the thing that you guys spend most 43 00:02:15,080 --> 00:02:17,960 Speaker 1: of your time talking about, which is the EU Emissions 44 00:02:17,960 --> 00:02:21,919 Speaker 1: Trading System, and we're going to talk today about some 45 00:02:22,000 --> 00:02:25,600 Speaker 1: important reforms that are being discussed and potentially progressed in 46 00:02:25,639 --> 00:02:29,519 Speaker 1: the very near term. But before we go into what's changing, 47 00:02:30,120 --> 00:02:32,200 Speaker 1: let's go back. How long has this been around for 48 00:02:32,560 --> 00:02:36,239 Speaker 1: and when was the last time since its origination there 49 00:02:36,280 --> 00:02:38,680 Speaker 1: was a sizeable change to the EU e T S. 50 00:02:39,160 --> 00:02:41,880 Speaker 1: E t S it's the scheme that has been around 51 00:02:41,880 --> 00:02:45,200 Speaker 1: since two thousand and five. So it's a market based 52 00:02:45,440 --> 00:02:48,519 Speaker 1: carbon market and it's a kind of that cap and 53 00:02:48,560 --> 00:02:51,640 Speaker 1: trade system. So it basically has the absolute cap that 54 00:02:52,120 --> 00:02:56,520 Speaker 1: all installations in the EU market there are around eleven 55 00:02:56,760 --> 00:02:59,960 Speaker 1: southern they have to keep their emissions under that cap. 56 00:03:00,360 --> 00:03:03,600 Speaker 1: So basically installation or a company in new e T 57 00:03:03,840 --> 00:03:08,000 Speaker 1: S they can either reduce their emissions themselves or pay 58 00:03:08,160 --> 00:03:12,119 Speaker 1: for the emissions that they produce, and altogether they need 59 00:03:12,160 --> 00:03:15,200 Speaker 1: to keep under the cap that is regulated by the 60 00:03:15,280 --> 00:03:19,400 Speaker 1: policy makers. So basically, the target by now is to 61 00:03:19,680 --> 00:03:24,480 Speaker 1: achieve forty three percent emission reduction by twenty thirty and 62 00:03:24,680 --> 00:03:28,000 Speaker 1: this is now to be changed or to be reformed, 63 00:03:28,440 --> 00:03:31,760 Speaker 1: and the goal right now is to align the emission 64 00:03:32,000 --> 00:03:36,080 Speaker 1: scheme to the larger European Green Deal and the fit 65 00:03:36,200 --> 00:03:40,960 Speaker 1: for fifty five target, which means fifty emission reduction by 66 00:03:41,000 --> 00:03:45,160 Speaker 1: twenty thirty compared to nine nine levels. And on largest 67 00:03:45,320 --> 00:03:49,520 Speaker 1: change for the market before this new reform has been 68 00:03:50,080 --> 00:03:55,280 Speaker 1: the ms ARE introduction of Market Stability Reserve, which basically 69 00:03:55,480 --> 00:03:59,920 Speaker 1: gave the extra boost to the European carbon price from eighteen. 70 00:04:00,320 --> 00:04:02,880 Speaker 1: I think we'd say this is arguably one of the 71 00:04:02,920 --> 00:04:06,320 Speaker 1: widest reforms the EU e t S has seen, and 72 00:04:06,440 --> 00:04:09,600 Speaker 1: actually globally and et S schemes. If they can pass 73 00:04:09,640 --> 00:04:12,600 Speaker 1: these reforms, this will be a pretty significant change across 74 00:04:12,640 --> 00:04:16,280 Speaker 1: the number of the elements of the overall European Union 75 00:04:16,279 --> 00:04:19,479 Speaker 1: emission Trading scheme and this will apply to every country 76 00:04:19,520 --> 00:04:22,640 Speaker 1: that is in the EU and has companies operating physically 77 00:04:22,680 --> 00:04:25,200 Speaker 1: on their soil or on their soil, and overseas there 78 00:04:25,200 --> 00:04:28,360 Speaker 1: will be those that are physically on this soil. So 79 00:04:28,440 --> 00:04:32,760 Speaker 1: there's also the scope for currently entr EU airlines as well, 80 00:04:33,000 --> 00:04:36,360 Speaker 1: but that's also up to reforms whether this scope would 81 00:04:36,360 --> 00:04:39,880 Speaker 1: be changed. So you referenced the fit for fifty five reforms, 82 00:04:39,880 --> 00:04:42,480 Speaker 1: which is what we really want to delve into today. 83 00:04:42,600 --> 00:04:48,800 Speaker 1: They're looking to bring down emissions by which industries is 84 00:04:48,880 --> 00:04:53,320 Speaker 1: this going to impact because it appears that there are 85 00:04:53,360 --> 00:04:58,000 Speaker 1: actually some new industries that will be impacted by these reforms. Indeed, 86 00:04:58,040 --> 00:05:00,760 Speaker 1: that's right, Dana. Eu E t S a carbon market 87 00:05:00,920 --> 00:05:04,560 Speaker 1: in Europe has always borne bigger emission reduction burden than 88 00:05:04,600 --> 00:05:08,320 Speaker 1: the rest of the sectors. So how fifty five percent 89 00:05:08,440 --> 00:05:11,640 Speaker 1: will translate into EU E t S. It's going to 90 00:05:11,680 --> 00:05:15,640 Speaker 1: be higher. So the proposed figures have been from permission, 91 00:05:15,720 --> 00:05:18,600 Speaker 1: it's been sixty one percent emission reduction for those EU 92 00:05:18,680 --> 00:05:21,479 Speaker 1: E t S sectors and now that we have seen 93 00:05:21,520 --> 00:05:26,640 Speaker 1: from Parliament this suggested number is sixty three percent emission reduction. 94 00:05:27,080 --> 00:05:31,400 Speaker 1: What does this basically mean to the sectors under the 95 00:05:31,400 --> 00:05:34,080 Speaker 1: EU E t S scheme is that they need to 96 00:05:34,080 --> 00:05:38,560 Speaker 1: crank up their emission reduction and also investment into those 97 00:05:38,600 --> 00:05:43,040 Speaker 1: low carbon technologies. For power sector will expect more fiel 98 00:05:43,080 --> 00:05:48,480 Speaker 1: switching from cold to gas, as well as uptake of renewables, 99 00:05:48,520 --> 00:05:52,359 Speaker 1: more wind, more solar and batteries. And then what this 100 00:05:52,480 --> 00:05:55,400 Speaker 1: means for industries is that they need to look into 101 00:05:55,600 --> 00:05:59,000 Speaker 1: the technologies that they can use to reduce their emissions, 102 00:05:59,040 --> 00:06:04,520 Speaker 1: so whether that is hydrogen CCS or bio fields or electrification. 103 00:06:05,160 --> 00:06:08,440 Speaker 1: What do the changes in FIT for fifty five mean 104 00:06:08,760 --> 00:06:13,800 Speaker 1: for some new entrance to this space, so specifically maritime 105 00:06:14,000 --> 00:06:16,960 Speaker 1: and shipping. I think the shipping space in particular has 106 00:06:16,960 --> 00:06:20,320 Speaker 1: been something that people have really been focused on as 107 00:06:20,320 --> 00:06:23,279 Speaker 1: a just a critical part of the economy as we 108 00:06:23,320 --> 00:06:28,279 Speaker 1: are looking at supply chains and how completely international and 109 00:06:28,320 --> 00:06:30,640 Speaker 1: global a lot of those are as we're dealing with, 110 00:06:30,880 --> 00:06:35,320 Speaker 1: you know, inflation. As EO targets deep decarbonization and NEST zero, 111 00:06:35,720 --> 00:06:39,720 Speaker 1: they have to include shipping emissions into the scope as well. 112 00:06:40,240 --> 00:06:43,600 Speaker 1: That's one reason. Another reason has been why we need 113 00:06:43,640 --> 00:06:48,000 Speaker 1: to include shipping is that aviation, especially entre u aviation, 114 00:06:48,360 --> 00:06:52,000 Speaker 1: has already been susceptible or they have been already been 115 00:06:52,080 --> 00:06:54,800 Speaker 1: included to EU e t s and they have been 116 00:06:55,000 --> 00:06:58,480 Speaker 1: mandated to pay for their emissions. So it would be 117 00:06:58,560 --> 00:07:02,800 Speaker 1: fair to have owth shipping and aviation in the same 118 00:07:02,920 --> 00:07:07,080 Speaker 1: scheme as well as for buildings and transport. There is 119 00:07:07,160 --> 00:07:11,440 Speaker 1: a separate market now proposed for them. The reason to 120 00:07:11,720 --> 00:07:16,160 Speaker 1: have them separate is mainly that one, they're more consumer facing, 121 00:07:16,400 --> 00:07:20,680 Speaker 1: so separating them would allow setting up mechanisms to protect 122 00:07:20,800 --> 00:07:25,520 Speaker 1: those more vulnerable groups, especially those who are more vulnerable 123 00:07:25,520 --> 00:07:29,200 Speaker 1: in terms of higher energy costs like consumers and small 124 00:07:29,240 --> 00:07:33,080 Speaker 1: and medium sized companies. Another reason is that the cost 125 00:07:33,280 --> 00:07:38,240 Speaker 1: for decarbonizing buildings and transport are very high. By including 126 00:07:38,320 --> 00:07:42,600 Speaker 1: them into the carbon market, we may not see significant 127 00:07:42,800 --> 00:07:47,720 Speaker 1: emission reductions in these sectors immediately, so the incentive to 128 00:07:48,080 --> 00:07:51,880 Speaker 1: reduce emissions in these sectors wouldn't be instant. By having 129 00:07:51,920 --> 00:07:57,360 Speaker 1: a separate market, we could also introduce other supporting mechanisms 130 00:07:57,480 --> 00:08:01,840 Speaker 1: to make this happen. For example, what Spending suggested a 131 00:08:01,840 --> 00:08:07,040 Speaker 1: format to kind of accelerate decrbinization is contract for a 132 00:08:07,040 --> 00:08:10,880 Speaker 1: difference carbon contract for a difference to be exact, and 133 00:08:10,960 --> 00:08:14,960 Speaker 1: what this means, it's basically to use the curbon market 134 00:08:15,200 --> 00:08:17,280 Speaker 1: and the carbon price as much as we can, but 135 00:08:17,400 --> 00:08:21,880 Speaker 1: then top up with additional amount of kind of subsidy 136 00:08:22,040 --> 00:08:24,880 Speaker 1: so that we can reach the price needed to drive 137 00:08:24,960 --> 00:08:28,400 Speaker 1: this emission reduction. I think, just on the fairness point, 138 00:08:28,480 --> 00:08:33,079 Speaker 1: so Bo just raised it, it's fair to include shipping 139 00:08:33,200 --> 00:08:38,280 Speaker 1: alongside aviation, which has already included with buildings. If your 140 00:08:38,320 --> 00:08:41,200 Speaker 1: building is current electrified, so you're using a heat pump 141 00:08:41,200 --> 00:08:45,040 Speaker 1: in your home that actually has a carbon price associated 142 00:08:45,080 --> 00:08:48,440 Speaker 1: with it, Whereas if your home is currently using gas, 143 00:08:48,480 --> 00:08:51,720 Speaker 1: there is no carbon price associated with it, So this 144 00:08:51,800 --> 00:08:54,280 Speaker 1: is in order to level the playing field for buildings 145 00:08:54,320 --> 00:08:57,520 Speaker 1: alongside sectors such as the power sector, which is already 146 00:08:57,559 --> 00:08:59,839 Speaker 1: included in the EU e t S. So let's go 147 00:09:00,080 --> 00:09:02,520 Speaker 1: another part of this which is meant to level the 148 00:09:02,559 --> 00:09:06,480 Speaker 1: playing field and also quite contentious within the proposed changes, 149 00:09:06,559 --> 00:09:10,720 Speaker 1: which is the carbon border adjustment mechanism. What is this 150 00:09:10,880 --> 00:09:13,720 Speaker 1: and why is it so contentious? So the Carbon border 151 00:09:13,720 --> 00:09:17,440 Speaker 1: adjustment mechanism, as we've just been discussing, the majority of 152 00:09:17,559 --> 00:09:21,040 Speaker 1: industrials in the EU are within the EU Emissions Trading Scheme, 153 00:09:21,120 --> 00:09:25,160 Speaker 1: so this means any ton of emissions produced they must 154 00:09:25,160 --> 00:09:28,800 Speaker 1: pay then the respect of carbon price. If goods are 155 00:09:28,840 --> 00:09:33,120 Speaker 1: imported from an outside country, that country may not have 156 00:09:33,320 --> 00:09:37,160 Speaker 1: an equivalent scheme to the EU Emissions Trading scheme, which 157 00:09:37,200 --> 00:09:39,640 Speaker 1: means that those goods are produced without having to pay 158 00:09:39,720 --> 00:09:43,160 Speaker 1: a carbon price. So what the carbon border adjustment mechanism 159 00:09:43,200 --> 00:09:48,560 Speaker 1: tries to do is effectively equate those two products. So 160 00:09:48,720 --> 00:09:51,559 Speaker 1: a ton of steel produced in the EU paying an 161 00:09:51,720 --> 00:09:54,280 Speaker 1: X amount of carbon price is going to be the 162 00:09:54,360 --> 00:09:57,680 Speaker 1: same as a ton of steel produced outside of the EU, 163 00:09:57,840 --> 00:10:00,760 Speaker 1: where they will pay effectively and input X that will 164 00:10:00,800 --> 00:10:03,280 Speaker 1: be equal to the carbon price the ton of steel 165 00:10:03,280 --> 00:10:07,240 Speaker 1: and the EU has had to pay. Now it's controversial, 166 00:10:07,320 --> 00:10:11,640 Speaker 1: of course, because this would require the EU effectively regulating 167 00:10:12,000 --> 00:10:15,920 Speaker 1: production from outside of the European Union. Also, there's the 168 00:10:15,960 --> 00:10:18,600 Speaker 1: second part of it, which is we haven't seen significant 169 00:10:18,679 --> 00:10:24,439 Speaker 1: industrial decarbonization in the EU emissions trading scheme because industrials 170 00:10:24,440 --> 00:10:27,640 Speaker 1: have received free allocation and so what that was is 171 00:10:27,679 --> 00:10:31,400 Speaker 1: effectively free permits in order for them to produce that 172 00:10:31,520 --> 00:10:34,640 Speaker 1: ton of steel but not pay the effective carbon price. 173 00:10:35,200 --> 00:10:37,520 Speaker 1: And so in order for it to be fair if 174 00:10:37,520 --> 00:10:41,000 Speaker 1: outside the EU is paying a carbon price, those free 175 00:10:41,000 --> 00:10:44,520 Speaker 1: allowances have to be removed, which means current production within 176 00:10:44,559 --> 00:10:47,040 Speaker 1: the EU will then have to pay the full carbon price. 177 00:10:47,360 --> 00:10:51,520 Speaker 1: So what about the countries that do have their own 178 00:10:51,679 --> 00:10:55,240 Speaker 1: trading mechanism and how will this impact and interact with them? 179 00:10:55,280 --> 00:10:58,280 Speaker 1: So I'm thinking actually specifically the country that we're sitting in, 180 00:10:58,480 --> 00:11:00,640 Speaker 1: m Au and I bow is spose in the States, 181 00:11:00,679 --> 00:11:04,520 Speaker 1: but the United Kingdom, since Brexit took place, they've set 182 00:11:04,600 --> 00:11:08,560 Speaker 1: up their own e t s. How does that interact 183 00:11:08,840 --> 00:11:12,839 Speaker 1: with these new potential rules. Will there will be a 184 00:11:13,559 --> 00:11:15,839 Speaker 1: bit of a change you expect on this side? How 185 00:11:15,880 --> 00:11:18,200 Speaker 1: long will that take and how does it interact with 186 00:11:18,200 --> 00:11:21,360 Speaker 1: a carbon border adjustment mechanism. So actually the u K 187 00:11:21,600 --> 00:11:24,400 Speaker 1: e T S has or emissions trading scheme has traded 188 00:11:24,440 --> 00:11:27,520 Speaker 1: actually at a bit of a premium compared to the 189 00:11:27,559 --> 00:11:31,120 Speaker 1: EU emissions trading schemes to actually permits are slightly higher 190 00:11:31,120 --> 00:11:33,720 Speaker 1: in cost than we're seeing in the EU. That means 191 00:11:33,800 --> 00:11:36,959 Speaker 1: is effectively, if you are paying more under your local 192 00:11:37,040 --> 00:11:40,720 Speaker 1: scheme then the EU emissions trading scheme, you wouldn't have 193 00:11:40,800 --> 00:11:44,000 Speaker 1: to pay that carbon border adjustment mechanism. So this is 194 00:11:44,000 --> 00:11:46,920 Speaker 1: going to hit countries who either don't have a carbon 195 00:11:46,960 --> 00:11:50,200 Speaker 1: price at all or have a much lower carbon price 196 00:11:50,360 --> 00:11:54,440 Speaker 1: than the current price of European Union allowances. It also 197 00:11:54,520 --> 00:11:59,600 Speaker 1: depends on your imports emission intensity, so if your imports 198 00:12:00,000 --> 00:12:04,160 Speaker 1: mission intensity is lower than the existing benchmark in Europe, 199 00:12:04,200 --> 00:12:08,640 Speaker 1: you can also avoid paying that carbon levy at the border. Basically, 200 00:12:08,679 --> 00:12:12,440 Speaker 1: if we kind of summarize, the main point for this 201 00:12:12,679 --> 00:12:17,000 Speaker 1: carbon border adjustment mechanism is really three. One is to 202 00:12:17,160 --> 00:12:21,839 Speaker 1: ensure the fairness of competition for different industries, especially those 203 00:12:21,920 --> 00:12:25,480 Speaker 1: under the EU E T scope. Then second is to 204 00:12:25,720 --> 00:12:29,440 Speaker 1: reduce emissions ensure that you can achieve that the net 205 00:12:29,679 --> 00:12:33,600 Speaker 1: zero goals and the set mid term emission goals as well. 206 00:12:33,960 --> 00:12:37,319 Speaker 1: And then the third is to encourage also other countries 207 00:12:37,559 --> 00:12:40,640 Speaker 1: to take up emission reduction pulses. So what will take 208 00:12:40,640 --> 00:12:44,280 Speaker 1: the fit for fifty proposals from more than a proposal 209 00:12:44,280 --> 00:12:46,679 Speaker 1: and something that is actually going to come to pass 210 00:12:46,720 --> 00:12:49,880 Speaker 1: and actually impact the way that the e ETS functions. 211 00:12:49,880 --> 00:12:54,080 Speaker 1: So how this works in the European Union is effectively 212 00:12:54,320 --> 00:12:57,360 Speaker 1: European lawmakers have to agree amongst themselves. So there's are 213 00:12:57,559 --> 00:13:01,120 Speaker 1: three key parties that need to agree. So the European 214 00:13:01,160 --> 00:13:05,520 Speaker 1: Commission is the body who proposed for fort. The next 215 00:13:05,559 --> 00:13:08,679 Speaker 1: stage as it goes to the European Parliament to either 216 00:13:08,880 --> 00:13:11,640 Speaker 1: agree or disagree on all of the elements that have 217 00:13:11,720 --> 00:13:14,760 Speaker 1: been proposed by the Commission. So the Parliament must agree 218 00:13:14,760 --> 00:13:17,839 Speaker 1: amongst themselves whether they're happy on each of the proposals 219 00:13:17,960 --> 00:13:22,400 Speaker 1: or they propose amendments. Once Parliament has agreed, this thing 220 00:13:22,480 --> 00:13:25,640 Speaker 1: goes to the European Council and the European Council does 221 00:13:25,679 --> 00:13:28,400 Speaker 1: the same. Are they happy with the proposal, would they 222 00:13:28,440 --> 00:13:32,199 Speaker 1: prefer to amend as both said, the European Parliament has 223 00:13:32,200 --> 00:13:35,959 Speaker 1: suggested a higher emissions reduction, so sixty three percent decline 224 00:13:35,960 --> 00:13:39,559 Speaker 1: and emissions compared to sixty one from the European Commission. 225 00:13:39,600 --> 00:13:42,359 Speaker 1: And so the European Council either agrees with the Commission 226 00:13:42,440 --> 00:13:45,600 Speaker 1: or agrees with the Parliament. It's all of its circular 227 00:13:45,679 --> 00:13:48,760 Speaker 1: and then once all three have agreed their position, it 228 00:13:48,840 --> 00:13:53,160 Speaker 1: goes into trialogue negotiations they agree amongst themselves, and once 229 00:13:53,240 --> 00:13:56,920 Speaker 1: that's occurred, which we were hoping to see at the 230 00:13:57,040 --> 00:13:59,520 Speaker 1: end of this year early next, it will be introduced 231 00:13:59,559 --> 00:14:03,040 Speaker 1: into legislative process. How long is that going to take, 232 00:14:03,400 --> 00:14:07,120 Speaker 1: That's the question everyone's asking. Because of the significance of 233 00:14:07,160 --> 00:14:10,920 Speaker 1: these reforms, these negotiations are set to take a bit 234 00:14:10,960 --> 00:14:15,520 Speaker 1: of time. Just recently, the European Parliament Plenary actually voted 235 00:14:15,559 --> 00:14:19,280 Speaker 1: down the proposed amendments for a significant part of the 236 00:14:19,280 --> 00:14:22,800 Speaker 1: EU e t S or Emissions Trading Scheme reforms. And 237 00:14:22,880 --> 00:14:25,360 Speaker 1: so what that does is it sends it back to 238 00:14:25,720 --> 00:14:28,560 Speaker 1: the sub committees of Parliament to renegotiate, and then it 239 00:14:28,560 --> 00:14:31,160 Speaker 1: will come back up to Parliament plenary to vote. So 240 00:14:31,240 --> 00:14:34,200 Speaker 1: any setbacks like this adds at least a few weeks. 241 00:14:34,240 --> 00:14:38,280 Speaker 1: This entire process usually takes around one to two years. Okay, 242 00:14:38,280 --> 00:14:40,920 Speaker 1: so one to two years we're sitting here at These 243 00:14:40,920 --> 00:14:43,480 Speaker 1: are supposed to impact the market for well, for goals 244 00:14:43,520 --> 00:14:47,640 Speaker 1: that are actually focused on. Is there any concern that 245 00:14:47,720 --> 00:14:50,000 Speaker 1: it will take too long to actually come to pass 246 00:14:50,040 --> 00:14:53,000 Speaker 1: in order for these rules to have a meaningful impact 247 00:14:53,120 --> 00:14:56,560 Speaker 1: on emissions reduction. The longer we wait, the shorter time 248 00:14:56,600 --> 00:15:00,120 Speaker 1: frame in which participants within the market will have to 249 00:15:00,160 --> 00:15:04,120 Speaker 1: reduce your emissions. And so we're expecting in terms of 250 00:15:04,120 --> 00:15:06,360 Speaker 1: those emissions productions that there will be a one off 251 00:15:06,360 --> 00:15:10,520 Speaker 1: free base, effectively a one off adjustment where we reduce 252 00:15:10,640 --> 00:15:13,600 Speaker 1: the number of allowances in the market and then it 253 00:15:13,640 --> 00:15:17,000 Speaker 1: continues to decrease per year as it does currently. What 254 00:15:17,160 --> 00:15:19,680 Speaker 1: that means is you squeeze it into a few years, 255 00:15:19,800 --> 00:15:22,640 Speaker 1: and it's likely the scarcity will drive the price of 256 00:15:22,720 --> 00:15:27,640 Speaker 1: the allowances even higher. Actually, the risk of postponing is increasing. 257 00:15:27,840 --> 00:15:31,600 Speaker 1: Maybe we will still be able to reach the timeline 258 00:15:31,600 --> 00:15:35,040 Speaker 1: targets that we have in mind, or at least what 259 00:15:35,240 --> 00:15:38,400 Speaker 1: the consensus of the market have in mind. This consensus 260 00:15:38,480 --> 00:15:42,040 Speaker 1: right now is to start the reforms, our implementation of 261 00:15:42,080 --> 00:15:45,560 Speaker 1: the reforms in twenty four What this risk of postponing 262 00:15:45,680 --> 00:15:49,640 Speaker 1: would mean right now if short term is just more uncertainty, 263 00:15:49,920 --> 00:15:53,600 Speaker 1: and this uncertainty of policy is on top of the 264 00:15:53,680 --> 00:15:57,160 Speaker 1: market on centinety is that we have been experiencing as well. 265 00:15:57,640 --> 00:16:04,160 Speaker 1: Amidst inflation risks, commodity risks and also bigger economic risks. 266 00:16:04,160 --> 00:16:09,080 Speaker 1: Carbon has basically been seen as the commodity that has 267 00:16:09,160 --> 00:16:14,280 Speaker 1: more stability. Having this amount of policy delays and changes, 268 00:16:14,520 --> 00:16:17,440 Speaker 1: are not convinced in the market at the time when 269 00:16:17,920 --> 00:16:21,120 Speaker 1: the market really needs quite a lot of market confidence. 270 00:16:21,320 --> 00:16:23,600 Speaker 1: In the long term, though, what this means is that 271 00:16:23,800 --> 00:16:28,520 Speaker 1: we could see drastic actually market movement because we need 272 00:16:28,760 --> 00:16:32,240 Speaker 1: faster emission reductions in the later years, we may see 273 00:16:32,560 --> 00:16:36,440 Speaker 1: more market volatility actually than less market molaticity, which is 274 00:16:36,480 --> 00:16:40,800 Speaker 1: also maybe not what the policymakers in Europe would like. 275 00:16:41,120 --> 00:16:47,680 Speaker 1: Now for a very short break, stay with us. How 276 00:16:47,800 --> 00:16:51,080 Speaker 1: are carbon traders and those who are actually looking to 277 00:16:51,280 --> 00:16:54,440 Speaker 1: I guess profit off of the volatility within the market. 278 00:16:54,480 --> 00:16:56,960 Speaker 1: How are they looking at this? And then also how 279 00:16:56,960 --> 00:16:59,200 Speaker 1: are the businesses that are going to be directly impacted 280 00:16:59,240 --> 00:17:02,040 Speaker 1: looking at it? Is there a lot of resistance and 281 00:17:02,160 --> 00:17:05,359 Speaker 1: are there areas of support? Carbon market has been a 282 00:17:05,520 --> 00:17:08,800 Speaker 1: keep place for traders in the last few years, and 283 00:17:09,200 --> 00:17:13,400 Speaker 1: we have also seen an influx of financial intermediaries coming 284 00:17:13,480 --> 00:17:17,240 Speaker 1: to this market mainly for several reasons. Maybe the most 285 00:17:17,280 --> 00:17:21,159 Speaker 1: obvious one is that this is a commodity where there's 286 00:17:21,240 --> 00:17:25,680 Speaker 1: a declining supply and the demand is rather in a 287 00:17:25,800 --> 00:17:31,320 Speaker 1: lastic as we said, to reduce those industrial emissions, it's 288 00:17:31,400 --> 00:17:35,800 Speaker 1: really expensive. So in that way the trajectory for carbon 289 00:17:35,840 --> 00:17:39,960 Speaker 1: price is well the required carbon price to reduce emissions 290 00:17:40,240 --> 00:17:43,720 Speaker 1: in line with what the policymakers are saying is upwards. 291 00:17:43,760 --> 00:17:47,159 Speaker 1: There are attraction for this commodity in other ways as well. 292 00:17:47,320 --> 00:17:52,600 Speaker 1: One is that it's an environmental sustainable asset, so people 293 00:17:52,680 --> 00:17:56,560 Speaker 1: who want to expand their investment for photios to more 294 00:17:57,160 --> 00:18:01,280 Speaker 1: sustainable products, greener products, carbon could be seen as a 295 00:18:01,320 --> 00:18:04,119 Speaker 1: good option. It can be also used as a hedge 296 00:18:04,119 --> 00:18:08,800 Speaker 1: in tool or like carbon intensive investment, but also for 297 00:18:09,119 --> 00:18:14,480 Speaker 1: interest risks because carbon in general track the technology that 298 00:18:14,720 --> 00:18:17,960 Speaker 1: would be out the margin to abate the required amount 299 00:18:18,040 --> 00:18:22,480 Speaker 1: of emissions, and that technology is usually aligned with an 300 00:18:22,560 --> 00:18:25,919 Speaker 1: increase in interest risks in the market as well, so 301 00:18:26,040 --> 00:18:29,200 Speaker 1: that it will be investing in carbon would naturally also 302 00:18:29,440 --> 00:18:32,880 Speaker 1: head you from interest risks. So being ear f expects 303 00:18:33,000 --> 00:18:36,560 Speaker 1: the price of European Union allowances to hit one thirty 304 00:18:36,640 --> 00:18:40,480 Speaker 1: six years put down nominal by So that high price 305 00:18:40,640 --> 00:18:44,159 Speaker 1: presents an opportunity for traders with increased folatilely as Bo 306 00:18:44,320 --> 00:18:47,720 Speaker 1: was just mentioning, But it also presents an opportunity for 307 00:18:47,840 --> 00:18:51,240 Speaker 1: companies who are producing low carbon solutions. So we're starting 308 00:18:51,240 --> 00:18:56,080 Speaker 1: to see low carbon industrial solutions for example c c 309 00:18:56,240 --> 00:19:00,119 Speaker 1: U s start to become competitive when we're seeing prices 310 00:19:00,160 --> 00:19:04,040 Speaker 1: this high. So it's it's no longer where carbon is 311 00:19:04,119 --> 00:19:07,240 Speaker 1: not heading balance sheets, so emitters it's just quite happy 312 00:19:07,280 --> 00:19:10,360 Speaker 1: to just continue to burn. Fossil carbon is now becoming 313 00:19:10,640 --> 00:19:13,440 Speaker 1: quite a big consideration in terms of the power sector, 314 00:19:13,480 --> 00:19:17,439 Speaker 1: in particular when they're coming to retire assets or invest 315 00:19:17,480 --> 00:19:21,080 Speaker 1: in new assets. Now, as we know, everything within the 316 00:19:21,200 --> 00:19:26,480 Speaker 1: energy transition is interrelated, so with high gas prices and 317 00:19:26,760 --> 00:19:30,480 Speaker 1: sanctions on Russian gas and oil at the moment, and 318 00:19:30,520 --> 00:19:33,120 Speaker 1: then also what was already going to be a very 319 00:19:33,720 --> 00:19:37,280 Speaker 1: expensive year when it came to power prices, how has 320 00:19:37,400 --> 00:19:43,600 Speaker 1: this impacted how the European Commissioned, European Union, European Parliament 321 00:19:43,600 --> 00:19:48,040 Speaker 1: are all looking at these proposed changes. In part there's 322 00:19:48,080 --> 00:19:51,320 Speaker 1: a couple of interesting dynamics that are playing out. So 323 00:19:52,200 --> 00:19:55,880 Speaker 1: moving away from gas in the short term has seen 324 00:19:56,040 --> 00:19:59,959 Speaker 1: significant colburn, but actually it has also led to europe 325 00:20:00,000 --> 00:20:04,000 Speaker 1: In countries looking at increased renewables for instance, and any 326 00:20:04,040 --> 00:20:07,720 Speaker 1: investment in renewables that come on board will eventually decrease 327 00:20:07,800 --> 00:20:10,480 Speaker 1: the carbon price because effectively they don't have to pay 328 00:20:10,560 --> 00:20:12,720 Speaker 1: for as many permits if those come online. In the 329 00:20:12,720 --> 00:20:15,840 Speaker 1: near term, however, the European Union is looking to fund 330 00:20:16,080 --> 00:20:18,920 Speaker 1: the transition away from gas, and what they have done 331 00:20:19,000 --> 00:20:23,120 Speaker 1: is proposed selling the spare allowances from the market stability 332 00:20:23,160 --> 00:20:26,880 Speaker 1: reserve from the European Union Emissions trading scheme to raise 333 00:20:26,920 --> 00:20:30,680 Speaker 1: a figure of twenty billion out to six in order 334 00:20:30,720 --> 00:20:34,720 Speaker 1: to facilitate this move away from gas. This has some 335 00:20:34,760 --> 00:20:38,560 Speaker 1: pretty significant risks. As both said, we're already seeing increased 336 00:20:38,600 --> 00:20:42,440 Speaker 1: volatility in the carbon market from the reforms, and so 337 00:20:42,560 --> 00:20:47,399 Speaker 1: any additional quite sporadic policy announcements like this moves the 338 00:20:47,480 --> 00:20:50,400 Speaker 1: price significantly. The other part of it is that they 339 00:20:50,440 --> 00:20:53,600 Speaker 1: haven't specified the number of allowances. They've only specified the 340 00:20:53,640 --> 00:20:56,440 Speaker 1: monetary amount, so as you can imagine, if you start 341 00:20:56,520 --> 00:21:00,200 Speaker 1: selling allowances into the market and adding additional supply, this 342 00:21:00,400 --> 00:21:02,360 Speaker 1: is likely to be bearish for the price. A low 343 00:21:02,640 --> 00:21:05,359 Speaker 1: low of the price so become quite circular. You didn't 344 00:21:05,400 --> 00:21:07,960 Speaker 1: have to release more allowances in order to raise the 345 00:21:08,000 --> 00:21:10,919 Speaker 1: amount of funding that you need, which again carries on 346 00:21:10,960 --> 00:21:15,160 Speaker 1: the spiral downwards. Yeah, exactly, and it adds to the 347 00:21:15,200 --> 00:21:18,920 Speaker 1: amount of uncertainty in the market right now because if 348 00:21:18,920 --> 00:21:21,480 Speaker 1: we look at this plan what the magist described, it 349 00:21:21,600 --> 00:21:25,040 Speaker 1: is called repower EU. So a part of this plan 350 00:21:25,200 --> 00:21:28,040 Speaker 1: is to increase the supply to the market through ms 351 00:21:28,200 --> 00:21:32,399 Speaker 1: Market Stability Reserve. Another is to double the Innovation Fund 352 00:21:32,560 --> 00:21:36,199 Speaker 1: auctions this year and also another the third part is 353 00:21:36,240 --> 00:21:39,639 Speaker 1: to also increase the contract for a difference budget for 354 00:21:39,800 --> 00:21:43,919 Speaker 1: the EU Innovation Fund. How this would impact the market 355 00:21:44,040 --> 00:21:47,800 Speaker 1: is that if we the the technologies to reduce emasines 356 00:21:47,840 --> 00:21:51,320 Speaker 1: would get funding from elsewhere then the carbon market. That's 357 00:21:51,359 --> 00:21:54,760 Speaker 1: also bearish for the market. But we have to also 358 00:21:54,800 --> 00:21:58,000 Speaker 1: look at the market outside of this only reform, but 359 00:21:58,080 --> 00:22:00,919 Speaker 1: all of the reform packages. So now we have four 360 00:22:01,160 --> 00:22:03,639 Speaker 1: before we are we had three packages, so fifth for 361 00:22:03,760 --> 00:22:07,600 Speaker 1: fifty five carbon Border Adjustment Mechanism and MSR reform. So 362 00:22:07,680 --> 00:22:11,119 Speaker 1: this add one layer of additional answer attempting. So we 363 00:22:11,200 --> 00:22:13,760 Speaker 1: would have now fit for fifty five RA power you 364 00:22:14,080 --> 00:22:18,720 Speaker 1: see them an MSR. So the collected impact on the 365 00:22:18,760 --> 00:22:22,919 Speaker 1: market is becoming more and more unknown. Meanwhile, for like 366 00:22:23,320 --> 00:22:27,760 Speaker 1: for carbon investors more from the financial financial markets, they 367 00:22:27,760 --> 00:22:30,880 Speaker 1: are also in a difficult situation because one is all 368 00:22:30,880 --> 00:22:34,760 Speaker 1: this uncertainties and another is that part of this reforms 369 00:22:34,880 --> 00:22:39,520 Speaker 1: also proposed that they may be exempt from this market 370 00:22:39,680 --> 00:22:42,840 Speaker 1: if reforms get moved forward. So all in all, a 371 00:22:42,880 --> 00:22:46,320 Speaker 1: lot of uncertainties in the market. Well within the uncertainties 372 00:22:46,320 --> 00:22:48,400 Speaker 1: and within some of the industries that are actually going 373 00:22:48,440 --> 00:22:51,280 Speaker 1: to be impacted. Let's talk a little bit about the 374 00:22:51,320 --> 00:22:53,920 Speaker 1: hard to abate space. So we already discussed maritime and 375 00:22:53,960 --> 00:22:57,840 Speaker 1: shipping and buildings, which are new entrants to this, but 376 00:22:57,920 --> 00:22:59,840 Speaker 1: how about some of the spaces that have had pre 377 00:23:00,000 --> 00:23:04,600 Speaker 1: easily had very generous allowances. So let's talk about cement, fertilizer, 378 00:23:05,160 --> 00:23:08,640 Speaker 1: aluminium or aluminum depending upon you who you are. What 379 00:23:08,680 --> 00:23:10,320 Speaker 1: are we seeing there and is that where a lot 380 00:23:10,359 --> 00:23:13,320 Speaker 1: of the uncertainty really lies and how they will be impacted. 381 00:23:13,720 --> 00:23:17,639 Speaker 1: For hard to abate sectors, they know that EU has 382 00:23:17,760 --> 00:23:21,880 Speaker 1: emission reduction requirements from them and they can now see 383 00:23:22,000 --> 00:23:25,200 Speaker 1: more or less the trajectory because the sixty one sixty 384 00:23:25,320 --> 00:23:30,119 Speaker 1: three is different but still quite similar in terms of 385 00:23:30,119 --> 00:23:33,600 Speaker 1: where we're going. But for them, the answertainty is how 386 00:23:33,680 --> 00:23:37,359 Speaker 1: much the air free allowances will be actually reduced. The 387 00:23:37,800 --> 00:23:41,080 Speaker 1: rate has been suggesting rate has been quite different. There's 388 00:23:41,760 --> 00:23:46,160 Speaker 1: the Commission hosts at ten percent annual free allowance reduction 389 00:23:46,240 --> 00:23:52,399 Speaker 1: from and now at the Parliament suggested also another figure, 390 00:23:52,600 --> 00:23:58,200 Speaker 1: more easier one, so they would have more free allowances towards. 391 00:23:58,240 --> 00:24:02,600 Speaker 1: So for industrials in the European Union emissions trading scheme, 392 00:24:02,600 --> 00:24:05,800 Speaker 1: it's an interesting question. They've been included for a number 393 00:24:05,840 --> 00:24:10,600 Speaker 1: of years, but the free allowances have effectively insulated these industries. 394 00:24:11,080 --> 00:24:15,120 Speaker 1: That's currently proposed that these free allowances would be phased 395 00:24:15,160 --> 00:24:18,520 Speaker 1: out as you know, a carbon border adjustment mechanism is 396 00:24:18,600 --> 00:24:21,440 Speaker 1: faced in What this means is their industrials are now 397 00:24:21,480 --> 00:24:25,480 Speaker 1: looking at what their decombanization options are, So for instance, 398 00:24:25,680 --> 00:24:30,200 Speaker 1: in aluminium or steal, they're looking for electrification, they're looking 399 00:24:30,200 --> 00:24:33,280 Speaker 1: for hydrogen, they're looking for ccus. The question is a 400 00:24:33,280 --> 00:24:36,680 Speaker 1: lot harder than the power sector, where wind and solar 401 00:24:36,720 --> 00:24:39,919 Speaker 1: became the dominant technologies of choice. Industries have had a 402 00:24:39,960 --> 00:24:44,320 Speaker 1: lot longer to consider solutions. But in fact what that's 403 00:24:44,359 --> 00:24:47,120 Speaker 1: meant is actually the price of these emissions allowances has 404 00:24:47,160 --> 00:24:51,040 Speaker 1: also grown, so they're going to start feeling that or 405 00:24:51,400 --> 00:24:54,240 Speaker 1: realizing the carbon price at a much higher rate than 406 00:24:54,280 --> 00:24:57,679 Speaker 1: the power sector was previously. So the power sector was 407 00:24:57,720 --> 00:25:00,200 Speaker 1: included and the phase out of free A and for 408 00:25:00,240 --> 00:25:02,640 Speaker 1: the passing to Heppen the number of years ago when 409 00:25:02,640 --> 00:25:05,360 Speaker 1: the average price was setting a lot lower being Eve 410 00:25:05,440 --> 00:25:07,840 Speaker 1: predicts the average price to be eighty four euros per 411 00:25:07,960 --> 00:25:11,520 Speaker 1: ton this year, so already significant. So if industries are 412 00:25:11,520 --> 00:25:16,320 Speaker 1: getting phased out around the mid twenty twenties towards and beyond, 413 00:25:16,480 --> 00:25:19,640 Speaker 1: by this stage we're expecting the carbon price to be significant, 414 00:25:19,640 --> 00:25:22,280 Speaker 1: So they're going to get hit with either really high 415 00:25:22,280 --> 00:25:26,880 Speaker 1: carbon prices or are probably still pretty high de carbonization options. 416 00:25:27,080 --> 00:25:29,960 Speaker 1: I think how the hard to bid industry could see 417 00:25:29,960 --> 00:25:32,920 Speaker 1: this like either as an opportunity or as a risk. 418 00:25:33,119 --> 00:25:36,080 Speaker 1: In terms of a risk, M already measured quite well 419 00:25:36,119 --> 00:25:40,159 Speaker 1: that the current price is increasing and the free allocations decreasing, 420 00:25:40,280 --> 00:25:43,879 Speaker 1: so the effective carbon price for industries is also likely 421 00:25:43,960 --> 00:25:47,679 Speaker 1: to increase and potentially quite drastically. But it could be 422 00:25:47,760 --> 00:25:51,120 Speaker 1: also an opportunity in a way that by investing before 423 00:25:51,440 --> 00:25:56,000 Speaker 1: the other competitors globally, they could achieve a carbon advantage, 424 00:25:56,440 --> 00:26:00,320 Speaker 1: and this carbon advantage could be beneficial globally as well. 425 00:26:00,359 --> 00:26:04,200 Speaker 1: Outside of Europe, there are already customers who are looking 426 00:26:04,280 --> 00:26:09,359 Speaker 1: for green products feeding into this demand could brain additional 427 00:26:09,480 --> 00:26:13,879 Speaker 1: revenue streams now investment into cleaner technologies in order to 428 00:26:14,280 --> 00:26:18,320 Speaker 1: aid in decarbonization. Therefore, you know, emissions reduction from a 429 00:26:18,320 --> 00:26:20,800 Speaker 1: lot of the companies that are participating in this and 430 00:26:21,000 --> 00:26:24,640 Speaker 1: located in the EU, that is one of the desired outcomes. 431 00:26:24,680 --> 00:26:27,560 Speaker 1: That's what the European Union is trying to accomplish with 432 00:26:27,640 --> 00:26:31,480 Speaker 1: these reforms and actually with the existing system. Is it 433 00:26:31,640 --> 00:26:36,800 Speaker 1: really visible to them to all of us, what technologies 434 00:26:37,000 --> 00:26:41,240 Speaker 1: are really indirectly linked to the pressure being put on 435 00:26:41,280 --> 00:26:44,600 Speaker 1: them by a high carbon price? Or do we really 436 00:26:44,640 --> 00:26:47,400 Speaker 1: only see it when a technology makes it Because invariably 437 00:26:47,960 --> 00:26:51,679 Speaker 1: R and D and development of technology doesn't always end 438 00:26:51,760 --> 00:26:55,000 Speaker 1: up working out. Timelines can be very different than what 439 00:26:55,160 --> 00:26:58,399 Speaker 1: was initially anticipated when somebody sets out on creating solutions. 440 00:26:58,640 --> 00:27:01,280 Speaker 1: And as we increasingly get to the space of industries 441 00:27:01,280 --> 00:27:04,320 Speaker 1: that have a limited number of options and solutions available 442 00:27:04,359 --> 00:27:07,439 Speaker 1: to them today, do you think it will be clear 443 00:27:07,560 --> 00:27:10,879 Speaker 1: and easy to link back a lot of the progress 444 00:27:10,880 --> 00:27:12,639 Speaker 1: that we hope to see over the next few years 445 00:27:13,040 --> 00:27:15,879 Speaker 1: and how that actually the EU e t S impacted that. 446 00:27:16,040 --> 00:27:18,480 Speaker 1: I think it's a really interesting question and it's something 447 00:27:18,520 --> 00:27:21,480 Speaker 1: that the EU e t S or Emissions Training Scheme 448 00:27:21,560 --> 00:27:23,800 Speaker 1: is not new, right, It's been going since two thousand 449 00:27:23,800 --> 00:27:26,040 Speaker 1: and five, and what we have seen is it's been 450 00:27:26,760 --> 00:27:29,480 Speaker 1: hailed as a pretty big success in terms of pushing 451 00:27:29,480 --> 00:27:33,119 Speaker 1: the power sector to decarbonize. And so what we've actually 452 00:27:33,119 --> 00:27:36,800 Speaker 1: seen is a pretty significant decline in power sector emissions 453 00:27:36,920 --> 00:27:40,280 Speaker 1: and the uptake of low carbon solutions such as solar 454 00:27:40,359 --> 00:27:44,320 Speaker 1: and wind. It's the cornerstone policy of the European Union 455 00:27:44,400 --> 00:27:48,160 Speaker 1: to drive emissions reductions. It doesn't mean it's the one 456 00:27:48,280 --> 00:27:51,679 Speaker 1: solution so Bo mentioned earlier. It may well be that 457 00:27:51,760 --> 00:27:56,600 Speaker 1: this is combined with upfront subsidies or carbon contracts. For difference, 458 00:27:56,840 --> 00:28:00,520 Speaker 1: the Innovation Fund, which is a scheme that's funded by 459 00:28:00,600 --> 00:28:06,439 Speaker 1: the European Union allowances, actually then recycles that revenue and 460 00:28:06,520 --> 00:28:09,879 Speaker 1: invests in early stage projects. For example, we've seen a 461 00:28:09,960 --> 00:28:13,920 Speaker 1: number of hydrogen projects received funding. So the carbon price 462 00:28:14,000 --> 00:28:16,399 Speaker 1: might be the stick, but there is a carrot that 463 00:28:16,560 --> 00:28:21,080 Speaker 1: is being dangled because of revenues generated. Yeah, exactly, So yes, 464 00:28:21,119 --> 00:28:25,640 Speaker 1: it's not a simler bullet to solve this energy transition questions. 465 00:28:25,640 --> 00:28:29,240 Speaker 1: But it brings transparency to the narrative. It gives the 466 00:28:29,440 --> 00:28:33,960 Speaker 1: industries an actual number at price signal that shows that 467 00:28:34,040 --> 00:28:38,560 Speaker 1: the cost for emitting it's going up. So there's a 468 00:28:38,600 --> 00:28:41,400 Speaker 1: crisis and there is a driver for them to do 469 00:28:41,520 --> 00:28:43,960 Speaker 1: something about it. So if you had to summarize what 470 00:28:44,040 --> 00:28:46,920 Speaker 1: are the main stumbling blocks that you think stand between 471 00:28:47,360 --> 00:28:50,200 Speaker 1: it being approved tomorrow and going into practice and what 472 00:28:50,240 --> 00:28:54,160 Speaker 1: they're actually discussing over there in Brussels, I think what's 473 00:28:54,200 --> 00:28:59,360 Speaker 1: interesting is that actually we're fighting over technicalities. So the 474 00:28:59,360 --> 00:29:03,640 Speaker 1: carbon border adjustment mechanism was originally seen as the most 475 00:29:03,640 --> 00:29:07,960 Speaker 1: controversial and incredibly hard to get through lawmakers, But what 476 00:29:07,960 --> 00:29:11,200 Speaker 1: we've seen actually is the debates are surrounding the timeline, 477 00:29:11,520 --> 00:29:15,240 Speaker 1: not the carbon border adjustment mechanism. The same goes for 478 00:29:15,280 --> 00:29:18,720 Speaker 1: the wider reforms of the EU emissions trading scheme. We're 479 00:29:18,720 --> 00:29:23,800 Speaker 1: seeing lawmakers fight over percentage reductions, not increasing the ambition. 480 00:29:24,240 --> 00:29:26,320 Speaker 1: So I think the positive thing to take out of 481 00:29:26,320 --> 00:29:28,920 Speaker 1: the reforms as they stand today is the big and 482 00:29:28,960 --> 00:29:31,600 Speaker 1: the bulk of the changes are going to make it 483 00:29:31,640 --> 00:29:35,520 Speaker 1: through the current negotiations around a bit more about what 484 00:29:35,600 --> 00:29:37,720 Speaker 1: form they're going to take, but actually the direction of 485 00:29:37,760 --> 00:29:42,040 Speaker 1: travel is emissions reductions and movement towards net zero for 486 00:29:42,200 --> 00:29:45,880 Speaker 1: the European Union. Think, the main then that EU needs 487 00:29:45,960 --> 00:29:48,920 Speaker 1: to agree on is how to get from today to 488 00:29:48,920 --> 00:29:54,120 Speaker 1: tomorrow at the same time resolved the same questions in 489 00:29:54,160 --> 00:29:58,200 Speaker 1: a way that energy security, that cheapness of the energy, 490 00:29:58,360 --> 00:30:02,160 Speaker 1: and also the clean ness of that energy. And this 491 00:30:02,360 --> 00:30:06,960 Speaker 1: includes both power sector and industrial sector and potentially other 492 00:30:07,000 --> 00:30:12,240 Speaker 1: sectors that are under the like European Larger European Economy 493 00:30:12,280 --> 00:30:17,360 Speaker 1: and European Emission scope. And what you has been saying 494 00:30:17,560 --> 00:30:21,120 Speaker 1: is that it doesn't just want to maintain the status 495 00:30:21,200 --> 00:30:24,920 Speaker 1: quote for this three angles, but they want to push 496 00:30:25,000 --> 00:30:28,680 Speaker 1: hard on the decarbonization part. And what that means is 497 00:30:28,720 --> 00:30:31,040 Speaker 1: that at the price need to be even higher to 498 00:30:31,680 --> 00:30:35,080 Speaker 1: show this direction of change and to drive this direction 499 00:30:35,120 --> 00:30:37,480 Speaker 1: of change. So we will have to watch and see 500 00:30:37,520 --> 00:30:40,480 Speaker 1: what happens as they're looking at the fifty five measures. 501 00:30:40,520 --> 00:30:42,600 Speaker 1: Emma and both, thank you so much for joining and 502 00:30:42,640 --> 00:30:45,320 Speaker 1: explaining to us in more detail today. Thank you very much, 503 00:30:45,360 --> 00:30:52,520 Speaker 1: Thank you, day night, It was pleasure. Today's episode of 504 00:30:52,560 --> 00:30:55,600 Speaker 1: Switched On was edited by Rex Warner of gray Stoke Media. 505 00:30:55,640 --> 00:30:58,320 Speaker 1: Bloomberg any F as a service provided by Bloomberg Finance 506 00:30:58,400 --> 00:31:01,479 Speaker 1: LP and its affiliates. The recording does not constitute, nor 507 00:31:01,520 --> 00:31:04,720 Speaker 1: should it be construed, as investment advice, investment recommendations, or 508 00:31:04,800 --> 00:31:07,880 Speaker 1: recommendation as to an investment or other strategy. Bloomberg. An 509 00:31:07,920 --> 00:31:10,400 Speaker 1: e F should not be considered as information sufficient upon 510 00:31:10,440 --> 00:31:13,440 Speaker 1: which to base an investment decision. 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