Speaker 1: Hi, this is Dana Perkins and you're listening to Switch
Speaker 1: It on the B n F podcast. Today we're talking
Speaker 1: about carbon trading, the European Union Emissions Trading System or
Speaker 1: EU e t S for short, and many would say
Speaker 1: that it has been an effective tool in bringing European
Speaker 1: carbon emissions down. Now, recently there were changes to the
Speaker 1: system in response to Fit for fifty five, which is
Speaker 1: the EU Climate and Energy legislation designed to support the
Speaker 1: block's pledge to cut greenhouse gas emissions by at least
Speaker 1: fifty five percent when compared with levels. So if you're
Speaker 1: looking to get up to speed on how compliance markets
Speaker 1: like the EU e t S work and what Fit
Speaker 1: for fifty five is, well, today is for you. We
Speaker 1: speak with Bo Chin and Emma Cocher, who both focus
Speaker 1: on carbon markets at B and F Compliance. Carbon markets
Speaker 1: have come in and out of vogue, if you will,
Speaker 1: and there have been years where the carbon price fluctuated
Speaker 1: very little. As a result, many people thought of it
Speaker 1: as more of a carbon tax. But today not only
Speaker 1: does it really impact the companies that are paying for
Speaker 1: the credits, but there is a growing trader community which
Speaker 1: is closely watching and trading against these fluctuations. So while
Speaker 1: Article six and Cup twenty six last year brought carbon
Speaker 1: markets back into focus for some of the world, those
Speaker 1: of us in Europe, well, we're just continuing with something
Speaker 1: that was started way back in two thousand five. So
Speaker 1: I guess I asked the question, are you a carbon
Speaker 1: nuby or veteran? BENFS Carbon Research can be found for
Speaker 1: subscribers at BENF on the Bloomberg terminal, on BNF dot
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Speaker 1: you'd like to be aware of when we release new
Speaker 1: podcasts on Switched On focused on energy, transport and sustainability,
Speaker 1: just make sure to subscribe on whatever podcast player you're
Speaker 1: listening to us on now. And as a reminder, B
Speaker 1: and EF does not provide investment or strategy advice, and
Speaker 1: we have a complete disclaimer at the end of the show.
Speaker 1: But now let's speak with Bow and Emma about carbon
Speaker 1: markets and fit for fifty five. Thank you both for
Speaker 1: coming on the show today. Boh welcome, Thank you, Dana,
Speaker 1: great to be here, and Emma, thank you, Danna, great
Speaker 1: to be here. Alds. So we are here to talk
Speaker 1: about well, probably the thing that you guys spend most
Speaker 1: of your time talking about, which is the EU Emissions
Speaker 1: Trading System, and we're going to talk today about some
Speaker 1: important reforms that are being discussed and potentially progressed in
Speaker 1: the very near term. But before we go into what's changing,
Speaker 1: let's go back. How long has this been around for
Speaker 1: and when was the last time since its origination there
Speaker 1: was a sizeable change to the EU e T S.
Speaker 1: E t S it's the scheme that has been around
Speaker 1: since two thousand and five. So it's a market based
Speaker 1: carbon market and it's a kind of that cap and
Speaker 1: trade system. So it basically has the absolute cap that
Speaker 1: all installations in the EU market there are around eleven
Speaker 1: southern they have to keep their emissions under that cap.
Speaker 1: So basically installation or a company in new e T
Speaker 1: S they can either reduce their emissions themselves or pay
Speaker 1: for the emissions that they produce, and altogether they need
Speaker 1: to keep under the cap that is regulated by the
Speaker 1: policy makers. So basically, the target by now is to
Speaker 1: achieve forty three percent emission reduction by twenty thirty and
Speaker 1: this is now to be changed or to be reformed,
Speaker 1: and the goal right now is to align the emission
Speaker 1: scheme to the larger European Green Deal and the fit
Speaker 1: for fifty five target, which means fifty emission reduction by
Speaker 1: twenty thirty compared to nine nine levels. And on largest
Speaker 1: change for the market before this new reform has been
Speaker 1: the ms ARE introduction of Market Stability Reserve, which basically
Speaker 1: gave the extra boost to the European carbon price from eighteen.
Speaker 1: I think we'd say this is arguably one of the
Speaker 1: widest reforms the EU e t S has seen, and
Speaker 1: actually globally and et S schemes. If they can pass
Speaker 1: these reforms, this will be a pretty significant change across
Speaker 1: the number of the elements of the overall European Union
Speaker 1: emission Trading scheme and this will apply to every country
Speaker 1: that is in the EU and has companies operating physically
Speaker 1: on their soil or on their soil, and overseas there
Speaker 1: will be those that are physically on this soil. So
Speaker 1: there's also the scope for currently entr EU airlines as well,
Speaker 1: but that's also up to reforms whether this scope would
Speaker 1: be changed. So you referenced the fit for fifty five reforms,
Speaker 1: which is what we really want to delve into today.
Speaker 1: They're looking to bring down emissions by which industries is
Speaker 1: this going to impact because it appears that there are
Speaker 1: actually some new industries that will be impacted by these reforms. Indeed,
Speaker 1: that's right, Dana. Eu E t S a carbon market
Speaker 1: in Europe has always borne bigger emission reduction burden than
Speaker 1: the rest of the sectors. So how fifty five percent
Speaker 1: will translate into EU E t S. It's going to
Speaker 1: be higher. So the proposed figures have been from permission,
Speaker 1: it's been sixty one percent emission reduction for those EU
Speaker 1: E t S sectors and now that we have seen
Speaker 1: from Parliament this suggested number is sixty three percent emission reduction.
Speaker 1: What does this basically mean to the sectors under the
Speaker 1: EU E t S scheme is that they need to
Speaker 1: crank up their emission reduction and also investment into those
Speaker 1: low carbon technologies. For power sector will expect more fiel
Speaker 1: switching from cold to gas, as well as uptake of renewables,
Speaker 1: more wind, more solar and batteries. And then what this
Speaker 1: means for industries is that they need to look into
Speaker 1: the technologies that they can use to reduce their emissions,
Speaker 1: so whether that is hydrogen CCS or bio fields or electrification.
Speaker 1: What do the changes in FIT for fifty five mean
Speaker 1: for some new entrance to this space, so specifically maritime
Speaker 1: and shipping. I think the shipping space in particular has
Speaker 1: been something that people have really been focused on as
Speaker 1: a just a critical part of the economy as we
Speaker 1: are looking at supply chains and how completely international and
Speaker 1: global a lot of those are as we're dealing with,
Speaker 1: you know, inflation. As EO targets deep decarbonization and NEST zero,
Speaker 1: they have to include shipping emissions into the scope as well.
Speaker 1: That's one reason. Another reason has been why we need
Speaker 1: to include shipping is that aviation, especially entre u aviation,
Speaker 1: has already been susceptible or they have been already been
Speaker 1: included to EU e t s and they have been
Speaker 1: mandated to pay for their emissions. So it would be
Speaker 1: fair to have owth shipping and aviation in the same
Speaker 1: scheme as well as for buildings and transport. There is
Speaker 1: a separate market now proposed for them. The reason to
Speaker 1: have them separate is mainly that one, they're more consumer facing,
Speaker 1: so separating them would allow setting up mechanisms to protect
Speaker 1: those more vulnerable groups, especially those who are more vulnerable
Speaker 1: in terms of higher energy costs like consumers and small
Speaker 1: and medium sized companies. Another reason is that the cost
Speaker 1: for decarbonizing buildings and transport are very high. By including
Speaker 1: them into the carbon market, we may not see significant
Speaker 1: emission reductions in these sectors immediately, so the incentive to
Speaker 1: reduce emissions in these sectors wouldn't be instant. By having
Speaker 1: a separate market, we could also introduce other supporting mechanisms
Speaker 1: to make this happen. For example, what Spending suggested a
Speaker 1: format to kind of accelerate decrbinization is contract for a
Speaker 1: difference carbon contract for a difference to be exact, and
Speaker 1: what this means, it's basically to use the curbon market
Speaker 1: and the carbon price as much as we can, but
Speaker 1: then top up with additional amount of kind of subsidy
Speaker 1: so that we can reach the price needed to drive
Speaker 1: this emission reduction. I think, just on the fairness point,
Speaker 1: so Bo just raised it, it's fair to include shipping
Speaker 1: alongside aviation, which has already included with buildings. If your
Speaker 1: building is current electrified, so you're using a heat pump
Speaker 1: in your home that actually has a carbon price associated
Speaker 1: with it, Whereas if your home is currently using gas,
Speaker 1: there is no carbon price associated with it, So this
Speaker 1: is in order to level the playing field for buildings
Speaker 1: alongside sectors such as the power sector, which is already
Speaker 1: included in the EU e t S. So let's go
Speaker 1: another part of this which is meant to level the
Speaker 1: playing field and also quite contentious within the proposed changes,
Speaker 1: which is the carbon border adjustment mechanism. What is this
Speaker 1: and why is it so contentious? So the Carbon border
Speaker 1: adjustment mechanism, as we've just been discussing, the majority of
Speaker 1: industrials in the EU are within the EU Emissions Trading Scheme,
Speaker 1: so this means any ton of emissions produced they must
Speaker 1: pay then the respect of carbon price. If goods are
Speaker 1: imported from an outside country, that country may not have
Speaker 1: an equivalent scheme to the EU Emissions Trading scheme, which
Speaker 1: means that those goods are produced without having to pay
Speaker 1: a carbon price. So what the carbon border adjustment mechanism
Speaker 1: tries to do is effectively equate those two products. So
Speaker 1: a ton of steel produced in the EU paying an
Speaker 1: X amount of carbon price is going to be the
Speaker 1: same as a ton of steel produced outside of the EU,
Speaker 1: where they will pay effectively and input X that will
Speaker 1: be equal to the carbon price the ton of steel
Speaker 1: and the EU has had to pay. Now it's controversial,
Speaker 1: of course, because this would require the EU effectively regulating
Speaker 1: production from outside of the European Union. Also, there's the
Speaker 1: second part of it, which is we haven't seen significant
Speaker 1: industrial decarbonization in the EU emissions trading scheme because industrials
Speaker 1: have received free allocation and so what that was is
Speaker 1: effectively free permits in order for them to produce that
Speaker 1: ton of steel but not pay the effective carbon price.
Speaker 1: And so in order for it to be fair if
Speaker 1: outside the EU is paying a carbon price, those free
Speaker 1: allowances have to be removed, which means current production within
Speaker 1: the EU will then have to pay the full carbon price.
Speaker 1: So what about the countries that do have their own
Speaker 1: trading mechanism and how will this impact and interact with them?
Speaker 1: So I'm thinking actually specifically the country that we're sitting in,
Speaker 1: m Au and I bow is spose in the States,
Speaker 1: but the United Kingdom, since Brexit took place, they've set
Speaker 1: up their own e t s. How does that interact
Speaker 1: with these new potential rules. Will there will be a
Speaker 1: bit of a change you expect on this side? How
Speaker 1: long will that take and how does it interact with
Speaker 1: a carbon border adjustment mechanism. So actually the u K
Speaker 1: e T S has or emissions trading scheme has traded
Speaker 1: actually at a bit of a premium compared to the
Speaker 1: EU emissions trading schemes to actually permits are slightly higher
Speaker 1: in cost than we're seeing in the EU. That means
Speaker 1: is effectively, if you are paying more under your local
Speaker 1: scheme then the EU emissions trading scheme, you wouldn't have
Speaker 1: to pay that carbon border adjustment mechanism. So this is
Speaker 1: going to hit countries who either don't have a carbon
Speaker 1: price at all or have a much lower carbon price
Speaker 1: than the current price of European Union allowances. It also
Speaker 1: depends on your imports emission intensity, so if your imports
Speaker 1: mission intensity is lower than the existing benchmark in Europe,
Speaker 1: you can also avoid paying that carbon levy at the border. Basically,
Speaker 1: if we kind of summarize, the main point for this
Speaker 1: carbon border adjustment mechanism is really three. One is to
Speaker 1: ensure the fairness of competition for different industries, especially those
Speaker 1: under the EU E T scope. Then second is to
Speaker 1: reduce emissions ensure that you can achieve that the net
Speaker 1: zero goals and the set mid term emission goals as well.
Speaker 1: And then the third is to encourage also other countries
Speaker 1: to take up emission reduction pulses. So what will take
Speaker 1: the fit for fifty proposals from more than a proposal
Speaker 1: and something that is actually going to come to pass
Speaker 1: and actually impact the way that the e ETS functions.
Speaker 1: So how this works in the European Union is effectively
Speaker 1: European lawmakers have to agree amongst themselves. So there's are
Speaker 1: three key parties that need to agree. So the European
Speaker 1: Commission is the body who proposed for fort. The next
Speaker 1: stage as it goes to the European Parliament to either
Speaker 1: agree or disagree on all of the elements that have
Speaker 1: been proposed by the Commission. So the Parliament must agree
Speaker 1: amongst themselves whether they're happy on each of the proposals
Speaker 1: or they propose amendments. Once Parliament has agreed, this thing
Speaker 1: goes to the European Council and the European Council does
Speaker 1: the same. Are they happy with the proposal, would they
Speaker 1: prefer to amend as both said, the European Parliament has
Speaker 1: suggested a higher emissions reduction, so sixty three percent decline
Speaker 1: and emissions compared to sixty one from the European Commission.
Speaker 1: And so the European Council either agrees with the Commission
Speaker 1: or agrees with the Parliament. It's all of its circular
Speaker 1: and then once all three have agreed their position, it
Speaker 1: goes into trialogue negotiations they agree amongst themselves, and once
Speaker 1: that's occurred, which we were hoping to see at the
Speaker 1: end of this year early next, it will be introduced
Speaker 1: into legislative process. How long is that going to take,
Speaker 1: That's the question everyone's asking. Because of the significance of
Speaker 1: these reforms, these negotiations are set to take a bit
Speaker 1: of time. Just recently, the European Parliament Plenary actually voted
Speaker 1: down the proposed amendments for a significant part of the
Speaker 1: EU e t S or Emissions Trading Scheme reforms. And
Speaker 1: so what that does is it sends it back to
Speaker 1: the sub committees of Parliament to renegotiate, and then it
Speaker 1: will come back up to Parliament plenary to vote. So
Speaker 1: any setbacks like this adds at least a few weeks.
Speaker 1: This entire process usually takes around one to two years. Okay,
Speaker 1: so one to two years we're sitting here at These
Speaker 1: are supposed to impact the market for well, for goals
Speaker 1: that are actually focused on. Is there any concern that
Speaker 1: it will take too long to actually come to pass
Speaker 1: in order for these rules to have a meaningful impact
Speaker 1: on emissions reduction. The longer we wait, the shorter time
Speaker 1: frame in which participants within the market will have to
Speaker 1: reduce your emissions. And so we're expecting in terms of
Speaker 1: those emissions productions that there will be a one off
Speaker 1: free base, effectively a one off adjustment where we reduce
Speaker 1: the number of allowances in the market and then it
Speaker 1: continues to decrease per year as it does currently. What
Speaker 1: that means is you squeeze it into a few years,
Speaker 1: and it's likely the scarcity will drive the price of
Speaker 1: the allowances even higher. Actually, the risk of postponing is increasing.
Speaker 1: Maybe we will still be able to reach the timeline
Speaker 1: targets that we have in mind, or at least what
Speaker 1: the consensus of the market have in mind. This consensus
Speaker 1: right now is to start the reforms, our implementation of
Speaker 1: the reforms in twenty four What this risk of postponing
Speaker 1: would mean right now if short term is just more uncertainty,
Speaker 1: and this uncertainty of policy is on top of the
Speaker 1: market on centinety is that we have been experiencing as well.
Speaker 1: Amidst inflation risks, commodity risks and also bigger economic risks.
Speaker 1: Carbon has basically been seen as the commodity that has
Speaker 1: more stability. Having this amount of policy delays and changes,
Speaker 1: are not convinced in the market at the time when
Speaker 1: the market really needs quite a lot of market confidence.
Speaker 1: In the long term, though, what this means is that
Speaker 1: we could see drastic actually market movement because we need
Speaker 1: faster emission reductions in the later years, we may see
Speaker 1: more market volatility actually than less market molaticity, which is
Speaker 1: also maybe not what the policymakers in Europe would like.
Speaker 1: Now for a very short break, stay with us. How
Speaker 1: are carbon traders and those who are actually looking to
Speaker 1: I guess profit off of the volatility within the market.
Speaker 1: How are they looking at this? And then also how
Speaker 1: are the businesses that are going to be directly impacted
Speaker 1: looking at it? Is there a lot of resistance and
Speaker 1: are there areas of support? Carbon market has been a
Speaker 1: keep place for traders in the last few years, and
Speaker 1: we have also seen an influx of financial intermediaries coming
Speaker 1: to this market mainly for several reasons. Maybe the most
Speaker 1: obvious one is that this is a commodity where there's
Speaker 1: a declining supply and the demand is rather in a
Speaker 1: lastic as we said, to reduce those industrial emissions, it's
Speaker 1: really expensive. So in that way the trajectory for carbon
Speaker 1: price is well the required carbon price to reduce emissions
Speaker 1: in line with what the policymakers are saying is upwards.
Speaker 1: There are attraction for this commodity in other ways as well.
Speaker 1: One is that it's an environmental sustainable asset, so people
Speaker 1: who want to expand their investment for photios to more
Speaker 1: sustainable products, greener products, carbon could be seen as a
Speaker 1: good option. It can be also used as a hedge
Speaker 1: in tool or like carbon intensive investment, but also for
Speaker 1: interest risks because carbon in general track the technology that
Speaker 1: would be out the margin to abate the required amount
Speaker 1: of emissions, and that technology is usually aligned with an
Speaker 1: increase in interest risks in the market as well, so
Speaker 1: that it will be investing in carbon would naturally also
Speaker 1: head you from interest risks. So being ear f expects
Speaker 1: the price of European Union allowances to hit one thirty
Speaker 1: six years put down nominal by So that high price
Speaker 1: presents an opportunity for traders with increased folatilely as Bo
Speaker 1: was just mentioning, But it also presents an opportunity for
Speaker 1: companies who are producing low carbon solutions. So we're starting
Speaker 1: to see low carbon industrial solutions for example c c
Speaker 1: U s start to become competitive when we're seeing prices
Speaker 1: this high. So it's it's no longer where carbon is
Speaker 1: not heading balance sheets, so emitters it's just quite happy
Speaker 1: to just continue to burn. Fossil carbon is now becoming
Speaker 1: quite a big consideration in terms of the power sector,
Speaker 1: in particular when they're coming to retire assets or invest
Speaker 1: in new assets. Now, as we know, everything within the
Speaker 1: energy transition is interrelated, so with high gas prices and
Speaker 1: sanctions on Russian gas and oil at the moment, and
Speaker 1: then also what was already going to be a very
Speaker 1: expensive year when it came to power prices, how has
Speaker 1: this impacted how the European Commissioned, European Union, European Parliament
Speaker 1: are all looking at these proposed changes. In part there's
Speaker 1: a couple of interesting dynamics that are playing out. So
Speaker 1: moving away from gas in the short term has seen
Speaker 1: significant colburn, but actually it has also led to europe
Speaker 1: In countries looking at increased renewables for instance, and any
Speaker 1: investment in renewables that come on board will eventually decrease
Speaker 1: the carbon price because effectively they don't have to pay
Speaker 1: for as many permits if those come online. In the
Speaker 1: near term, however, the European Union is looking to fund
Speaker 1: the transition away from gas, and what they have done
Speaker 1: is proposed selling the spare allowances from the market stability
Speaker 1: reserve from the European Union Emissions trading scheme to raise
Speaker 1: a figure of twenty billion out to six in order
Speaker 1: to facilitate this move away from gas. This has some
Speaker 1: pretty significant risks. As both said, we're already seeing increased
Speaker 1: volatility in the carbon market from the reforms, and so
Speaker 1: any additional quite sporadic policy announcements like this moves the
Speaker 1: price significantly. The other part of it is that they
Speaker 1: haven't specified the number of allowances. They've only specified the
Speaker 1: monetary amount, so as you can imagine, if you start
Speaker 1: selling allowances into the market and adding additional supply, this
Speaker 1: is likely to be bearish for the price. A low
Speaker 1: low of the price so become quite circular. You didn't
Speaker 1: have to release more allowances in order to raise the
Speaker 1: amount of funding that you need, which again carries on
Speaker 1: the spiral downwards. Yeah, exactly, and it adds to the
Speaker 1: amount of uncertainty in the market right now because if
Speaker 1: we look at this plan what the magist described, it
Speaker 1: is called repower EU. So a part of this plan
Speaker 1: is to increase the supply to the market through ms
Speaker 1: Market Stability Reserve. Another is to double the Innovation Fund
Speaker 1: auctions this year and also another the third part is
Speaker 1: to also increase the contract for a difference budget for
Speaker 1: the EU Innovation Fund. How this would impact the market
Speaker 1: is that if we the the technologies to reduce emasines
Speaker 1: would get funding from elsewhere then the carbon market. That's
Speaker 1: also bearish for the market. But we have to also
Speaker 1: look at the market outside of this only reform, but
Speaker 1: all of the reform packages. So now we have four
Speaker 1: before we are we had three packages, so fifth for
Speaker 1: fifty five carbon Border Adjustment Mechanism and MSR reform. So
Speaker 1: this add one layer of additional answer attempting. So we
Speaker 1: would have now fit for fifty five RA power you
Speaker 1: see them an MSR. So the collected impact on the
Speaker 1: market is becoming more and more unknown. Meanwhile, for like
Speaker 1: for carbon investors more from the financial financial markets, they
Speaker 1: are also in a difficult situation because one is all
Speaker 1: this uncertainties and another is that part of this reforms
Speaker 1: also proposed that they may be exempt from this market
Speaker 1: if reforms get moved forward. So all in all, a
Speaker 1: lot of uncertainties in the market. Well within the uncertainties
Speaker 1: and within some of the industries that are actually going
Speaker 1: to be impacted. Let's talk a little bit about the
Speaker 1: hard to abate space. So we already discussed maritime and
Speaker 1: shipping and buildings, which are new entrants to this, but
Speaker 1: how about some of the spaces that have had pre
Speaker 1: easily had very generous allowances. So let's talk about cement, fertilizer,
Speaker 1: aluminium or aluminum depending upon you who you are. What
Speaker 1: are we seeing there and is that where a lot
Speaker 1: of the uncertainty really lies and how they will be impacted.
Speaker 1: For hard to abate sectors, they know that EU has
Speaker 1: emission reduction requirements from them and they can now see
Speaker 1: more or less the trajectory because the sixty one sixty
Speaker 1: three is different but still quite similar in terms of
Speaker 1: where we're going. But for them, the answertainty is how
Speaker 1: much the air free allowances will be actually reduced. The
Speaker 1: rate has been suggesting rate has been quite different. There's
Speaker 1: the Commission hosts at ten percent annual free allowance reduction
Speaker 1: from and now at the Parliament suggested also another figure,
Speaker 1: more easier one, so they would have more free allowances towards.
Speaker 1: So for industrials in the European Union emissions trading scheme,
Speaker 1: it's an interesting question. They've been included for a number
Speaker 1: of years, but the free allowances have effectively insulated these industries.
Speaker 1: That's currently proposed that these free allowances would be phased
Speaker 1: out as you know, a carbon border adjustment mechanism is
Speaker 1: faced in What this means is their industrials are now
Speaker 1: looking at what their decombanization options are, So for instance,
Speaker 1: in aluminium or steal, they're looking for electrification, they're looking
Speaker 1: for hydrogen, they're looking for ccus. The question is a
Speaker 1: lot harder than the power sector, where wind and solar
Speaker 1: became the dominant technologies of choice. Industries have had a
Speaker 1: lot longer to consider solutions. But in fact what that's
Speaker 1: meant is actually the price of these emissions allowances has
Speaker 1: also grown, so they're going to start feeling that or
Speaker 1: realizing the carbon price at a much higher rate than
Speaker 1: the power sector was previously. So the power sector was
Speaker 1: included and the phase out of free A and for
Speaker 1: the passing to Heppen the number of years ago when
Speaker 1: the average price was setting a lot lower being Eve
Speaker 1: predicts the average price to be eighty four euros per
Speaker 1: ton this year, so already significant. So if industries are
Speaker 1: getting phased out around the mid twenty twenties towards and beyond,
Speaker 1: by this stage we're expecting the carbon price to be significant,
Speaker 1: So they're going to get hit with either really high
Speaker 1: carbon prices or are probably still pretty high de carbonization options.
Speaker 1: I think how the hard to bid industry could see
Speaker 1: this like either as an opportunity or as a risk.
Speaker 1: In terms of a risk, M already measured quite well
Speaker 1: that the current price is increasing and the free allocations decreasing,
Speaker 1: so the effective carbon price for industries is also likely
Speaker 1: to increase and potentially quite drastically. But it could be
Speaker 1: also an opportunity in a way that by investing before
Speaker 1: the other competitors globally, they could achieve a carbon advantage,
Speaker 1: and this carbon advantage could be beneficial globally as well.
Speaker 1: Outside of Europe, there are already customers who are looking
Speaker 1: for green products feeding into this demand could brain additional
Speaker 1: revenue streams now investment into cleaner technologies in order to
Speaker 1: aid in decarbonization. Therefore, you know, emissions reduction from a
Speaker 1: lot of the companies that are participating in this and
Speaker 1: located in the EU, that is one of the desired outcomes.
Speaker 1: That's what the European Union is trying to accomplish with
Speaker 1: these reforms and actually with the existing system. Is it
Speaker 1: really visible to them to all of us, what technologies
Speaker 1: are really indirectly linked to the pressure being put on
Speaker 1: them by a high carbon price? Or do we really
Speaker 1: only see it when a technology makes it Because invariably
Speaker 1: R and D and development of technology doesn't always end
Speaker 1: up working out. Timelines can be very different than what
Speaker 1: was initially anticipated when somebody sets out on creating solutions.
Speaker 1: And as we increasingly get to the space of industries
Speaker 1: that have a limited number of options and solutions available
Speaker 1: to them today, do you think it will be clear
Speaker 1: and easy to link back a lot of the progress
Speaker 1: that we hope to see over the next few years
Speaker 1: and how that actually the EU e t S impacted that.
Speaker 1: I think it's a really interesting question and it's something
Speaker 1: that the EU e t S or Emissions Training Scheme
Speaker 1: is not new, right, It's been going since two thousand
Speaker 1: and five, and what we have seen is it's been
Speaker 1: hailed as a pretty big success in terms of pushing
Speaker 1: the power sector to decarbonize. And so what we've actually
Speaker 1: seen is a pretty significant decline in power sector emissions
Speaker 1: and the uptake of low carbon solutions such as solar
Speaker 1: and wind. It's the cornerstone policy of the European Union
Speaker 1: to drive emissions reductions. It doesn't mean it's the one
Speaker 1: solution so Bo mentioned earlier. It may well be that
Speaker 1: this is combined with upfront subsidies or carbon contracts. For difference,
Speaker 1: the Innovation Fund, which is a scheme that's funded by
Speaker 1: the European Union allowances, actually then recycles that revenue and
Speaker 1: invests in early stage projects. For example, we've seen a
Speaker 1: number of hydrogen projects received funding. So the carbon price
Speaker 1: might be the stick, but there is a carrot that
Speaker 1: is being dangled because of revenues generated. Yeah, exactly, So yes,
Speaker 1: it's not a simler bullet to solve this energy transition questions.
Speaker 1: But it brings transparency to the narrative. It gives the
Speaker 1: industries an actual number at price signal that shows that
Speaker 1: the cost for emitting it's going up. So there's a
Speaker 1: crisis and there is a driver for them to do
Speaker 1: something about it. So if you had to summarize what
Speaker 1: are the main stumbling blocks that you think stand between
Speaker 1: it being approved tomorrow and going into practice and what
Speaker 1: they're actually discussing over there in Brussels, I think what's
Speaker 1: interesting is that actually we're fighting over technicalities. So the
Speaker 1: carbon border adjustment mechanism was originally seen as the most
Speaker 1: controversial and incredibly hard to get through lawmakers, But what
Speaker 1: we've seen actually is the debates are surrounding the timeline,
Speaker 1: not the carbon border adjustment mechanism. The same goes for
Speaker 1: the wider reforms of the EU emissions trading scheme. We're
Speaker 1: seeing lawmakers fight over percentage reductions, not increasing the ambition.
Speaker 1: So I think the positive thing to take out of
Speaker 1: the reforms as they stand today is the big and
Speaker 1: the bulk of the changes are going to make it
Speaker 1: through the current negotiations around a bit more about what
Speaker 1: form they're going to take, but actually the direction of
Speaker 1: travel is emissions reductions and movement towards net zero for
Speaker 1: the European Union. Think, the main then that EU needs
Speaker 1: to agree on is how to get from today to
Speaker 1: tomorrow at the same time resolved the same questions in
Speaker 1: a way that energy security, that cheapness of the energy,
Speaker 1: and also the clean ness of that energy. And this
Speaker 1: includes both power sector and industrial sector and potentially other
Speaker 1: sectors that are under the like European Larger European Economy
Speaker 1: and European Emission scope. And what you has been saying
Speaker 1: is that it doesn't just want to maintain the status
Speaker 1: quote for this three angles, but they want to push
Speaker 1: hard on the decarbonization part. And what that means is
Speaker 1: that at the price need to be even higher to
Speaker 1: show this direction of change and to drive this direction
Speaker 1: of change. So we will have to watch and see
Speaker 1: what happens as they're looking at the fifty five measures.
Speaker 1: Emma and both, thank you so much for joining and
Speaker 1: explaining to us in more detail today. Thank you very much,
Speaker 1: Thank you, day night, It was pleasure. Today's episode of
Speaker 1: Switched On was edited by Rex Warner of gray Stoke Media.
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