WEBVTT - Carbon to Hit 100 Euros Sooner Than You Think 0:00:00.560 --> 0:00:03.160 Hi, I'm Dana Perkins and you're listening to Switched on 0:00:03.279 --> 0:00:05.760 the b n e F podcast. Today Mark Taylor and 0:00:05.800 --> 0:00:08.240 I speak with Jan Olsen, who's the head of European 0:00:08.280 --> 0:00:11.600 Carbon Research. We talked to Jan about the EU Emissions 0:00:11.640 --> 0:00:14.520 Trading System or EU e t S and his most 0:00:14.560 --> 0:00:17.599 recent market outlook, where he tells us how and when 0:00:17.720 --> 0:00:20.640 carbon prices are likely to go over one hundred euros 0:00:20.640 --> 0:00:23.640 per metric ton from the under fifty euro price they 0:00:23.640 --> 0:00:26.200 are today. We've not done a podcast about the EU 0:00:26.280 --> 0:00:28.120 e t S or the u K e t S 0:00:28.160 --> 0:00:29.920 for that matter, so this is going to serve as 0:00:29.920 --> 0:00:31.920 a bit of a primer. We're going to define a 0:00:31.920 --> 0:00:35.040 few things, explain how these markets work, and in other words, 0:00:35.080 --> 0:00:37.640 if you are a carbon trader, you likely already know 0:00:37.720 --> 0:00:40.159 this stuff, but for the rest of us, it's important 0:00:40.159 --> 0:00:43.959 we understand this unique mechanism for driving decarbonization. For those 0:00:43.960 --> 0:00:47.120 who want to know more, check out the one EU 0:00:47.159 --> 0:00:49.440 e t S market outlook or our primer on the 0:00:49.520 --> 0:00:52.239 UK Emissions Trading System. These can be found on the 0:00:52.240 --> 0:00:55.520 Bloomberg terminal at b NF Go or on BNF dot 0:00:55.520 --> 0:00:57.960 com or a mobile app. As a reminder, b and 0:00:58.120 --> 0:01:00.319 F does not provide investment of strategy advit. So we've 0:01:00.360 --> 0:01:02.480 got the full benef disclaimer at the end of the show. 0:01:03.080 --> 0:01:05.880 And now let's get started by speaking with Johan Olsen 0:01:05.959 --> 0:01:16.480 about the EU e t S. Jan thanks for joining 0:01:16.560 --> 0:01:19.319 us today. We are here to talk about the EU 0:01:19.400 --> 0:01:22.600 Emissions Trading scheme and what looks like will be a 0:01:22.720 --> 0:01:26.160 rocket ship sort of price increases over the next couple 0:01:26.160 --> 0:01:29.160 of years. So let's start. Will you first explain to 0:01:29.200 --> 0:01:32.039 all of us what the EU e t S is. 0:01:32.600 --> 0:01:36.000 Absolutely first, just let me say thank you for inviting 0:01:36.040 --> 0:01:38.039 me here. It's a pleasure to be here. Now, the 0:01:38.040 --> 0:01:40.560 EU e t S is a cup and trade emission 0:01:40.640 --> 0:01:43.000 market and us a name might suggest, coup and trate 0:01:43.120 --> 0:01:46.039 us two parts to it. The first part is is 0:01:46.080 --> 0:01:48.480 the cup in this case the use of the cap 0:01:48.560 --> 0:01:51.000 on the maximum amount of emissions that can be omitted 0:01:51.000 --> 0:01:55.280 by European industry dot cup will decline every year. The 0:01:55.280 --> 0:01:58.880 EU done distribute allowances either by auctions or they hand 0:01:58.960 --> 0:02:02.160 them out for free. Too hard to upbate industries. And 0:02:02.200 --> 0:02:04.440 you need one allowance for each ton of CEO to 0:02:04.600 --> 0:02:09.000 you emit, So an allowance is an European emissions allowance. 0:02:09.200 --> 0:02:14.239 The capticizes how many emissions allowances are supplied every year 0:02:14.280 --> 0:02:16.760 to the market. And the second part of the system 0:02:16.840 --> 0:02:21.440 is trade. Now companies, after they've got their initial allocation 0:02:21.520 --> 0:02:24.959 and auctions have taken place, companies can freely trade allowances 0:02:25.040 --> 0:02:28.919 between each other. And the idea is that companies with 0:02:28.960 --> 0:02:33.040 the expensive options to reduce emissions can buy allowances from 0:02:33.080 --> 0:02:36.040 companies with cheaper form of emission reductions available to them, 0:02:36.400 --> 0:02:39.480 and that way you have a market based mechanisms that 0:02:39.560 --> 0:02:43.240 hopefully will drive the cheapest form of emission reductions in 0:02:43.280 --> 0:02:46.160 the system as a hope. So these EU ways, which 0:02:46.200 --> 0:02:47.880 is what the cool kids call them, are looking to 0:02:47.960 --> 0:02:50.680 drive down emissions. Now how much are they looking to 0:02:50.720 --> 0:02:52.840 reduce emissions by and what year kind of what's the 0:02:52.880 --> 0:02:56.760 objective here? So that's a little bit unclear right now. 0:02:57.280 --> 0:03:01.760 The system is set up for the EU emissions target 0:03:01.880 --> 0:03:06.400 by which is a thought for target by twenty thirty 0:03:06.680 --> 0:03:08.360 and the U T S sectors will then have to 0:03:08.400 --> 0:03:12.760 reduce emissions by forty three percent compared to two thousand 0:03:12.800 --> 0:03:15.840 and five levels. Now we know the European Green Deal 0:03:16.080 --> 0:03:19.960 is taking place and that the updated emissions target for 0:03:20.360 --> 0:03:23.960 for the EU as a whole will be fifty by 0:03:23.960 --> 0:03:27.160 twenty thirty instead of the four percent that it currently is. 0:03:27.400 --> 0:03:30.480 It is not yet clear how that will impact EU 0:03:30.600 --> 0:03:34.200 d S sectors. Because the S sectors only covers about, 0:03:34.360 --> 0:03:38.360 let's say, just under half of emissions in the EU, 0:03:38.760 --> 0:03:41.360 we expect U d S sectors to have to carry 0:03:41.360 --> 0:03:44.960 more of the burden of this additional ambition. So when 0:03:44.960 --> 0:03:48.480 we run our models, we say that the cup for 0:03:48.560 --> 0:03:51.440 e U D U d S or the emissions targets 0:03:51.520 --> 0:03:56.080 will be a sixty three reduction in emissions compared to 0:03:56.120 --> 0:03:59.120 two thousand and five levels, and then the rest of 0:03:59.200 --> 0:04:00.920 the burden will have to carded by non e T 0:04:01.080 --> 0:04:04.760 S sectors such as transport or agriculture. Who's covered right now? 0:04:04.880 --> 0:04:06.960 Can you describe some of the EU E T S sectors? 0:04:07.360 --> 0:04:15.560 So it's essentially all heavy manufacturing industry, so things like cement, steel, aluminium, 0:04:15.960 --> 0:04:19.679 petrochemicals and that kind of thing. And in addition, power 0:04:19.800 --> 0:04:23.840 generations and intra regional aviation is covered, you know, and 0:04:23.880 --> 0:04:26.520 I understand how the policymakers fit into this. You know, 0:04:26.560 --> 0:04:29.480 they're trying to reduce carbon emissions in the EU and 0:04:29.640 --> 0:04:33.320 understand how the covered sectors play in as well. You know, 0:04:33.440 --> 0:04:35.720 they're on the hook for reducing their emissions or you know, 0:04:35.800 --> 0:04:38.680 buying credits or excuse me, eu A S to cover 0:04:38.760 --> 0:04:42.560 those emissions. But how does the financial sector work under 0:04:42.600 --> 0:04:46.919 the eu T S. It's different. Well, different financial actors 0:04:47.040 --> 0:04:50.760 act differently in the market for obvious reasons. First, I 0:04:50.800 --> 0:04:54.760 would say that most trading within the cover market happens 0:04:54.839 --> 0:04:59.680 within derivatives, so that these futures or options. Financial institutions 0:04:59.720 --> 0:05:02.880 like how UCH funds, banks, day traders, whatever it may be, 0:05:03.600 --> 0:05:07.760 have can trade these derivatives on exchanges like ICE or 0:05:07.920 --> 0:05:10.880 e X. And there are a lot of smart people 0:05:10.920 --> 0:05:15.080 within the financial sectors, particularly if you think about energy trading. 0:05:15.160 --> 0:05:17.480 Tusks are really active within the carbon market, and what 0:05:17.560 --> 0:05:21.200 they will do depends on what kind of time horizon 0:05:21.279 --> 0:05:25.400 they operate in. So you have anything from day traders 0:05:25.440 --> 0:05:28.120 who just look at their little latility that might even 0:05:28.200 --> 0:05:31.200 just look at technicals rather than the technical analysis rather 0:05:31.240 --> 0:05:34.440 than fundamental analysis in an attempt to you know, buy 0:05:34.520 --> 0:05:38.000 the dip and sell the top, as it were. You 0:05:38.080 --> 0:05:42.440 don't have institutions with longer horizon maybe a year, maybe 0:05:42.480 --> 0:05:45.080 two years, who have a fundamental view and where they 0:05:45.200 --> 0:05:48.159 think the price will move in general over the next 0:05:48.279 --> 0:05:51.920 year or so. And finally you might have institutional investors 0:05:52.360 --> 0:05:57.320 who will buy some EUA s or futures and look them, 0:05:57.440 --> 0:05:59.480 put them in a cupboard. They put them in a 0:05:59.520 --> 0:06:03.080 cupboard for four to five years and then see where 0:06:03.080 --> 0:06:06.560 the prices and when that time comes. Traders are much 0:06:06.680 --> 0:06:10.080 maligned in the market. So lately we've heard that there's 0:06:10.120 --> 0:06:15.120 been a lot of traders entering the market, particularly investment funds, 0:06:15.440 --> 0:06:17.680 and that has brought a lot of extra demand, which 0:06:17.680 --> 0:06:20.480 has driven the price up, maybe higher than some people 0:06:20.520 --> 0:06:23.040 have predicted. So it drives the price up but also 0:06:23.160 --> 0:06:26.440 potentially makes it harder for companies that are you know, 0:06:26.520 --> 0:06:29.200 the coverage sectors to get their hands on euays. Is 0:06:29.279 --> 0:06:32.080 that right, Yeah, that's's exactly correct. It is a fair 0:06:32.160 --> 0:06:36.360 point in a way that these financial investors are pushing 0:06:36.440 --> 0:06:38.720 the price up, but you have to remember that they 0:06:38.720 --> 0:06:41.640 also play a really important role as market makers and 0:06:42.480 --> 0:06:46.240 enhancing liquidity on the market. So so price formation becomes 0:06:46.440 --> 0:06:50.240 becomes better, and we have a let's say, a live 0:06:50.360 --> 0:06:53.560 market rather than a market with trades you know, every 0:06:53.640 --> 0:06:56.840 thirty minutes or so, so you know, they they're all 0:06:56.960 --> 0:07:01.160 that they play you could criticize it for or distorting 0:07:01.200 --> 0:07:03.120 the market, but at the same time it is important 0:07:03.120 --> 0:07:05.520 to have them there. It would seem that the policymakers 0:07:05.560 --> 0:07:08.520 would love it that they would drive up the price 0:07:08.560 --> 0:07:10.280 and make it harder to get the EU A S 0:07:10.320 --> 0:07:14.080 and therefore force well at least in encourage emitters to 0:07:14.280 --> 0:07:17.000 find other ways to reduce emissions. Well, if your end 0:07:17.040 --> 0:07:18.960 goal is emissions, but of course you could just put 0:07:19.040 --> 0:07:23.440 the cap down. Policy makers do support financial activity within 0:07:23.520 --> 0:07:27.360 the market. That being said, there are talks around holding 0:07:27.440 --> 0:07:30.320 limits for financial institutions as we have more and more 0:07:30.400 --> 0:07:34.000 funds joining and it could actually look like financials will 0:07:34.040 --> 0:07:37.800 become the dominant actor within the market. So there's a 0:07:37.880 --> 0:07:40.080 balance there and and you also have to think about 0:07:40.120 --> 0:07:43.480 the political side. But in the EU it is clear 0:07:43.600 --> 0:07:47.440 to to people in the European Commission and the European 0:07:47.520 --> 0:07:50.920 Parliament that we will need a much higher carbon price 0:07:51.000 --> 0:07:52.400 by the end of the de kid for you to 0:07:52.480 --> 0:07:56.440 reach its ambitious emission reduction targets. That being said, it's 0:07:56.480 --> 0:07:58.920 not just about you know, knowing that we have to 0:07:59.000 --> 0:08:03.000 get to a certain level. It is also about how 0:08:03.160 --> 0:08:05.600 fast we get. If you say a hundred and ten 0:08:05.840 --> 0:08:10.560 europer ton carbon price in thirties politically acceptable. That might 0:08:10.640 --> 0:08:14.160 not be the case for a hundred and ten euros 0:08:14.240 --> 0:08:18.920 per ton this year. So yes, the Eupean Commissioners or 0:08:18.960 --> 0:08:22.080 the the EU is happy for the financials to play 0:08:22.080 --> 0:08:25.200 in this market and to provide this extra liquidity, but 0:08:25.400 --> 0:08:28.960 there's also a limit to how how the price can 0:08:29.040 --> 0:08:32.200 go before we'll get a lot of lobbying from industrial 0:08:32.280 --> 0:08:36.439 interest groups or EU member states that might not necessarily 0:08:36.520 --> 0:08:40.760 support the carbon market as much as Western countries do. 0:08:41.160 --> 0:08:43.839 So let's talk about that price and what is it 0:08:44.000 --> 0:08:46.719 as of recording today? What is the price right now? 0:08:46.920 --> 0:08:49.040 The last time I checked it was something along the 0:08:49.080 --> 0:08:52.280 lines of fifty one euros per ton. We've had an 0:08:52.320 --> 0:08:55.719 all time high earlier fifty six euros per ton, So 0:08:56.400 --> 0:09:00.079 that is quite a dramatic increase from the twenty to 0:09:00.200 --> 0:09:04.240 thirty weeks so last year and certainly the five euros 0:09:04.280 --> 0:09:07.600 in tw seventeen. And you know that's yeah, that that's 0:09:07.640 --> 0:09:11.280 been driven by reform within the Euse of the EUTS 0:09:11.320 --> 0:09:14.400 has been reformed several times over the last few years, 0:09:14.800 --> 0:09:16.559 and that's striving the price of well. And you do 0:09:16.679 --> 0:09:19.439 this market outlook periodically where you look at what the 0:09:19.520 --> 0:09:22.559 price could be in the future, and you have a 0:09:22.720 --> 0:09:25.560 pretty good view on when you think we could reach 0:09:25.960 --> 0:09:28.280 a hundred euros per time? So when is that? And 0:09:28.760 --> 0:09:31.680 you know why has that timeline looked like it's gotten 0:09:31.720 --> 0:09:34.040 so much shorter. The main reason why the timeline has 0:09:34.160 --> 0:09:38.920 got so much shorter is this updated emission reduction target 0:09:39.120 --> 0:09:43.520 for twenty thirties. That will mean a a reformed that 0:09:43.640 --> 0:09:45.880 would have to literal reform of the U T S 0:09:46.600 --> 0:09:50.240 that will tighten the cap going into we can generally 0:09:50.280 --> 0:09:54.480 split our forecast down in into three periods at the moment, 0:09:54.640 --> 0:09:58.400 so the next few years, we still think fuel switching 0:09:58.440 --> 0:10:01.959 will be the dominant so of emission reductions, and to 0:10:02.040 --> 0:10:05.160 have sufficient field switching take place, we'll need a current 0:10:05.200 --> 0:10:08.240 price around where we are now, so anywhere between the 0:10:08.280 --> 0:10:11.120 fourties and sixties really, Then as we moved to the 0:10:11.200 --> 0:10:14.400 mid twenties, field switching will no longer be enough, and 0:10:15.360 --> 0:10:18.560 also there won't be as much field switching available as 0:10:18.800 --> 0:10:22.599 called plants close down, and that will lead to a 0:10:22.720 --> 0:10:29.120 period where renewables will dominate the emission reduction sort of picture. 0:10:29.240 --> 0:10:33.120 If you will renewables, I mean renewables that are on 0:10:33.280 --> 0:10:36.280 top of national targets, so we know there's going to 0:10:36.320 --> 0:10:38.920 be a lot of renewable auctions taking place in different 0:10:38.960 --> 0:10:43.000 EU member states. Well, we think also think that we're 0:10:43.000 --> 0:10:45.079 going to need some much and renewable so that is 0:10:45.840 --> 0:10:49.160 renewables that are only supported by a power purchase agreement 0:10:49.520 --> 0:10:52.800 or just placed on the spot market itself. And then 0:10:53.160 --> 0:10:55.840 as we get pasted towards the end of the decade, 0:10:56.200 --> 0:10:59.880 we're going to need to see industrial decorbanization and that's 0:11:00.080 --> 0:11:02.480 think we've never really seen in the e U t 0:11:02.720 --> 0:11:06.360 S or really any industrial sectors. So it is unclear 0:11:06.440 --> 0:11:08.600 how that will play out. But the two most likely 0:11:08.679 --> 0:11:11.600 technologies that will be used as we see it now 0:11:12.600 --> 0:11:16.000 is either hydrogen or CCS or a mixture of the two. 0:11:16.720 --> 0:11:21.800 And to make those technologies competitive against the more traditional 0:11:22.400 --> 0:11:27.400 methodologies of manufacturing steel, cement and that kind of thing, 0:11:27.960 --> 0:11:30.600 you're going to need a price around a hundred years 0:11:30.679 --> 0:11:33.480 per ton, and that is how we get to our 0:11:34.040 --> 0:11:39.080 forecast of above eight euros per ton by and it's 0:11:39.120 --> 0:11:40.679 just going to be gradual or do you think we're 0:11:40.679 --> 0:11:42.839 going to see a lot of volatility between now and then? 0:11:42.960 --> 0:11:45.199 We are going to see volatility. The ut is is 0:11:45.200 --> 0:11:47.920 a volatile market by its very nature. If you look 0:11:47.960 --> 0:11:52.559 at other energy commodities and compared volatility to carbon, then 0:11:52.600 --> 0:11:55.280 then carbon is is always higher. And and that is 0:11:56.040 --> 0:12:00.760 because it's it's an entirely political market. And say, you know, 0:12:00.840 --> 0:12:04.160 it's not a let's say, real commodity market. There's no 0:12:04.280 --> 0:12:07.319 storage of carbon per se, like you have a gas 0:12:07.360 --> 0:12:09.720 storage and and that kind of thing. So that closet 0:12:09.800 --> 0:12:13.680 we put them in, it's it's a metaphorical closet. Yes, exactly, exactly, 0:12:14.120 --> 0:12:16.120 So so yeah, I mean it is going to be volatile. 0:12:16.160 --> 0:12:18.520 It's not going to be an easy right, and the 0:12:18.559 --> 0:12:20.520 e U ty has cannot do it in a vacuum. 0:12:20.640 --> 0:12:25.079 It needs supporting policies like support for hydrogen projects that 0:12:25.240 --> 0:12:28.320 we are now seeing being announced in different EU member states. 0:12:28.920 --> 0:12:33.000 We know that there are large commercial scale hydrogen projects 0:12:33.200 --> 0:12:36.319 within the EU plan to go operational in in around 0:12:37.800 --> 0:12:40.840 and then gradually ramp up the full capacity by twenty thirty. 0:12:41.320 --> 0:12:43.839 So it is happening, and of course it will be 0:12:44.880 --> 0:12:48.640 if you look at the general trajectory, it will be gradual. 0:12:49.840 --> 0:12:53.240 But if you look at you know, whatever could happen 0:12:53.240 --> 0:12:56.160 within a year, it would I wouldn't be surprised to 0:12:56.240 --> 0:13:01.720 see spikes of twenty euros or or or of twenty euros. 0:13:02.240 --> 0:13:06.520 Now for a very short break, stay with us. So 0:13:06.600 --> 0:13:09.320 as we talk about price, one of the options while 0:13:09.360 --> 0:13:11.800 dealing with the carbon prices is something called fuel switching. 0:13:12.200 --> 0:13:14.160 Before we get into the you know how the price 0:13:14.240 --> 0:13:16.640 plays out, can you explain fuel switching and how companies 0:13:16.720 --> 0:13:19.240 go about it. Fuel switching has been the dominant form 0:13:19.280 --> 0:13:21.920 of emission reductions within the e U t S in 0:13:22.040 --> 0:13:25.280 the past couple of years. What that means is some 0:13:25.480 --> 0:13:30.679 markets have an over capacity within their power market. Coal 0:13:31.040 --> 0:13:35.160 is generally the cheapest fuel you can use to or 0:13:35.240 --> 0:13:39.000 call or lignite is generally the cheapest form of fuel 0:13:39.040 --> 0:13:40.960 you can use to to generate power, but they are 0:13:41.000 --> 0:13:45.640 really emissions intensive. Gas is more expensive but only have 0:13:45.920 --> 0:13:49.959 around half of the emissions intensity of coal. So in 0:13:50.120 --> 0:13:53.600 those markets where we have excess capacity within the power 0:13:53.679 --> 0:13:57.559 market and we have both coal and gas plants, what 0:13:57.679 --> 0:14:00.560 will happen is for the carbon market to balance, there 0:14:00.600 --> 0:14:04.400 will be a a need for some of those gas 0:14:04.480 --> 0:14:08.800 plants to take over a lot of the generation from 0:14:09.320 --> 0:14:13.120 some of those cold plants. No, as the carbon price 0:14:13.200 --> 0:14:16.520 goes up, it will become more expensive to produce power 0:14:16.640 --> 0:14:19.960 both by coal and by gas, but because coal's emissions 0:14:19.960 --> 0:14:23.840 intensity is higher, that will be affected more. And at 0:14:23.920 --> 0:14:26.560 some point, when the carbon price gets high enough, it 0:14:26.680 --> 0:14:32.040 becomes economically cheaper to produce power with gas than cold. 0:14:32.120 --> 0:14:35.480 So you get this dynamic where gas used to be 0:14:36.280 --> 0:14:38.680 a more expensive option, but because of the carbon price, 0:14:38.760 --> 0:14:41.120 it becomes a cheaper option than cold. Dana, I don't 0:14:41.120 --> 0:14:42.680 know about you, but I'm just really encouraged by this. 0:14:42.760 --> 0:14:45.000 It just seems like, you know, maybe I'm naive, but 0:14:45.040 --> 0:14:47.480 it seems like e U e t S works. It's 0:14:47.520 --> 0:14:49.320 pulling carbon out of the air, right, I think he's 0:14:49.360 --> 0:14:50.960 In the report it said something like a hundred and 0:14:51.040 --> 0:14:55.520 fifty eight million tons so far. I want to say, um, 0:14:55.880 --> 0:14:58.040 and honest way to I think it's a two. I'm 0:14:58.080 --> 0:15:00.560 not sure, but anyway, it seems that as the price 0:15:00.640 --> 0:15:02.760 goes up, you know, when it's low, you just pay 0:15:02.880 --> 0:15:04.520 for it. When it goes a bit higher, you do 0:15:04.680 --> 0:15:07.080 fuel switching, then you do renewables, and then it makes 0:15:07.080 --> 0:15:09.240 sense to suck the CEO two right out of your process, 0:15:09.240 --> 0:15:11.680 your industrial process, and then add more sectors to it. 0:15:13.040 --> 0:15:15.200 And that is why later in the show, we're also 0:15:15.280 --> 0:15:18.040 going to talk about the UK emissions Trading scheme because 0:15:18.120 --> 0:15:20.640 even though they brexited the European Union, they want to 0:15:20.760 --> 0:15:24.680 keep the emissions trading part. It works, it works, or 0:15:24.680 --> 0:15:28.760 at least it's it's working until now, and it's important 0:15:28.760 --> 0:15:30.680 to keep keep in mind that the U t has 0:15:30.960 --> 0:15:34.360 can't work alone. It needs supporting policy around it to 0:15:34.920 --> 0:15:39.920 to drive the price of nascent Decomganization technologies don't, particularly 0:15:40.040 --> 0:15:42.280 in the R and D phase or the pilot phase 0:15:42.360 --> 0:15:46.880 of a new technology. So it does work in the 0:15:47.000 --> 0:15:50.280 sense that it can drive fuel switching, and it can 0:15:50.360 --> 0:15:54.680 also to to some degree, will drive renewable spuild We 0:15:54.760 --> 0:15:59.800 haven't seen industriallycomganization yet, so we don't exactly know if 0:15:59.840 --> 0:16:02.120 it will function when we get to that stage, but 0:16:02.280 --> 0:16:05.520 we believe it will because we're already seeing these hydrogen 0:16:05.600 --> 0:16:08.960 projects coming online, and then we talk to companies, they 0:16:09.040 --> 0:16:11.200 say it is because they expect the carbon price to 0:16:11.280 --> 0:16:13.760 go up. The really important thing to keep in mind 0:16:13.880 --> 0:16:18.000 is that the fifty euros or sixty euros price we 0:16:18.080 --> 0:16:22.760 have now, it's an important signal two industrial companies that 0:16:23.160 --> 0:16:26.560 the market is a has to be taken seriously now. 0:16:26.960 --> 0:16:30.960 So it's an investment signal now to prepare for the future. 0:16:31.440 --> 0:16:33.840 If the price was twenty years per twn this year, 0:16:33.920 --> 0:16:36.800 that signal wouldn't be as strong. And if we think 0:16:36.840 --> 0:16:41.440 about the investment cycle for these big industrial companies, we 0:16:41.520 --> 0:16:45.120 are typically talking anywhere between five and fifteen years. So 0:16:45.240 --> 0:16:48.440 if we want to decarbonize heavy manufacturing industry within the 0:16:48.520 --> 0:16:53.000 EU by thirty that investment decision has to happen today, 0:16:53.040 --> 0:16:55.640 and that is why the high price today is such 0:16:55.760 --> 0:16:59.600 an important signal for industrial lead companization in the future. 0:17:00.040 --> 0:17:03.640 Time to get cracking, exactly, we're already too late. They 0:17:03.800 --> 0:17:06.680 should really have started yesterday, but we are where we are, 0:17:06.840 --> 0:17:09.159 and the best place to you know what, to say that, 0:17:09.280 --> 0:17:12.320 the best place to start this is yesterday, and failing that, 0:17:12.520 --> 0:17:15.840 let's start today. So you mentioned reducing the cost of 0:17:16.400 --> 0:17:20.000 nascent carbon reduction technologies. I remember, you know, I used 0:17:20.040 --> 0:17:23.720 to be a CCS analyst about a decade ago, and 0:17:24.240 --> 0:17:26.520 one of the ideas back then at least, was that 0:17:26.640 --> 0:17:28.920 they would use the proceeds for EU A s that 0:17:29.000 --> 0:17:32.280 were just you know, purchased to fund demonstration plants. Is 0:17:32.359 --> 0:17:34.719 that still the idea or what are the proceeds being 0:17:34.800 --> 0:17:36.760 used for that is still the idea. So we have 0:17:36.920 --> 0:17:42.560 this innovation fund that will support CCS projects and hydrogen 0:17:42.640 --> 0:17:47.280 projects and the like and so um. One of the 0:17:47.320 --> 0:17:51.040 advantages with the CCS is that you will get support 0:17:51.119 --> 0:17:54.840 from the innovation fund and from other sources, but you 0:17:54.880 --> 0:17:58.760 will also help a company avoid the high cost of 0:17:58.920 --> 0:18:03.159 emitting seal two. So you have essentially two income streams 0:18:03.200 --> 0:18:06.800 where if you are a company focusing purely on CCS, 0:18:07.480 --> 0:18:11.240 you could charge your customers, as it were, a price 0:18:11.359 --> 0:18:14.639 that is slightly lower than the eu A price, and 0:18:14.760 --> 0:18:16.879 then they can then sell their own eu A s 0:18:16.960 --> 0:18:19.040 to other companies and make a profit. So you have 0:18:19.080 --> 0:18:22.680 a not recharge opportunity there. But that is only possible 0:18:22.760 --> 0:18:26.639 with support, as CCS is quite expensive still, so you 0:18:26.840 --> 0:18:28.600 just need a price that supports it. You need a 0:18:28.640 --> 0:18:32.000 price that that supports it, and you need, like I said, 0:18:32.359 --> 0:18:35.480 support for pilot projects and underlike the encouraging thing that 0:18:35.560 --> 0:18:39.200 we're seeing. Now let's talk about industrial clusters. So the 0:18:39.359 --> 0:18:44.320 idea is that rather than having so a few megaprojects 0:18:44.880 --> 0:18:48.560 supporting the whole of EU, we start with some smaller projects, 0:18:48.680 --> 0:18:52.280 putting large industrial clusters, for example in the south of Germany. 0:18:52.800 --> 0:18:55.320 That way, you don't have to build a massive amount 0:18:55.400 --> 0:18:58.840 of infrastructure to put these projects into place, whether that 0:18:58.960 --> 0:19:01.280 be CCS or high rogen. So, since I think we 0:19:01.359 --> 0:19:04.439 have probably a few people listening today who aren't super 0:19:04.560 --> 0:19:08.120 knowledgeable on the emissions trading schemes, both in the UK 0:19:08.400 --> 0:19:11.480 and the EU, where else in the world are these 0:19:11.680 --> 0:19:15.200 if this is an effective mechanism, have any other countries 0:19:15.440 --> 0:19:17.639 or I'm going to lead on this one states that 0:19:17.800 --> 0:19:21.800 have U S states who have looked at doing something similar. Absolutely, 0:19:22.119 --> 0:19:24.639 so there are, like you said, in the United States, 0:19:24.760 --> 0:19:28.440 we have the California Quebec emissions trading systems and the 0:19:28.760 --> 0:19:32.120 and Reggie the Regional Greenhouse Gas Initiative. So we also 0:19:32.160 --> 0:19:35.719 know that Washington State will start a emissions trading system. 0:19:35.920 --> 0:19:39.000 I think by twenty twenty three we have an emission 0:19:39.240 --> 0:19:42.719 trading system in China for the power sector and several 0:19:42.840 --> 0:19:46.480 regional systems for industrial sectors in China as well. Then 0:19:46.520 --> 0:19:51.320 we have trading systems in Korea, Kazakhstan, New Zealand, and 0:19:51.440 --> 0:19:54.720 I'm sure I forgot some on the horizon. We also 0:19:54.800 --> 0:19:59.240 have these. Kenya has recently announced an emission trading system, 0:19:59.320 --> 0:20:02.359 and so has Ukraine. So it is popping up several 0:20:02.440 --> 0:20:05.320 places that there are already several, but there are more. 0:20:05.400 --> 0:20:07.840 Comic do you expect them to link? No, I don't 0:20:07.920 --> 0:20:10.720 expect them to link. We know that the one linkage 0:20:10.880 --> 0:20:14.320 we've had within the EU is the EU and the 0:20:14.440 --> 0:20:17.960 Swiss eas linking. They were really close and designed to 0:20:18.040 --> 0:20:21.520 each other, so all of the designed parameters were broadly similar, 0:20:21.600 --> 0:20:24.000 and it still took ten years to link those two markets. 0:20:24.400 --> 0:20:26.159 So it's it's it's a it's a difficult one, but 0:20:26.760 --> 0:20:29.680 but the other one, the u K e T S 0:20:29.720 --> 0:20:32.040 will likely link with the e U t S. But 0:20:32.160 --> 0:20:36.400 other than that, these broad international or a cross continental 0:20:37.119 --> 0:20:40.720 links are far away in the future. Hopefully we'll see them, 0:20:41.520 --> 0:20:43.440 but I wouldn't expect to see them within the next 0:20:43.520 --> 0:20:46.440 five years. I love how Jan said no when you 0:20:46.480 --> 0:20:48.200 asked him if they're going to link. He's like, no, 0:20:48.440 --> 0:20:50.480 are you crazy? You could hear in his voice like 0:20:50.880 --> 0:20:54.840 obviously not. I just I just remember the what California 0:20:54.880 --> 0:20:58.280 and Quebec capitrats linked, right, Yes, I mean it is 0:20:58.320 --> 0:21:00.960 a lot easier to link regional markets within the same 0:21:01.040 --> 0:21:04.440 continent than it is to to do cross continental linkage. 0:21:04.760 --> 0:21:07.960 It is also politically difficult because you need to you 0:21:08.040 --> 0:21:10.720 need countries that are not necessarily on the best terms 0:21:11.240 --> 0:21:15.560 to get to an agreement of fungibility, and you know 0:21:15.880 --> 0:21:20.320 the different parameters of linking not not not least conflict resolution. 0:21:20.400 --> 0:21:22.960 So yeah, and we've we've talked about regional expansion of 0:21:23.080 --> 0:21:25.240 current markets. But going back to the EU e t 0:21:25.400 --> 0:21:28.760 S just for just a second, let's talk about sector expansion. 0:21:29.080 --> 0:21:33.920 In the report, you mentioned that it's likely that maritime 0:21:34.280 --> 0:21:39.040 will be included soon and aviation is looking possible. My 0:21:39.160 --> 0:21:42.960 question here is, looking at fuel switching, it seems hard 0:21:43.040 --> 0:21:46.720 for these sectors to do fuel switching and reduce emissions. 0:21:46.800 --> 0:21:48.119 Are they just going to be on the hook for 0:21:48.240 --> 0:21:53.960 just buying us to some degree, yes, but there are 0:21:54.040 --> 0:21:57.120 ways to reduce emissions in maritime and there are ways 0:21:57.160 --> 0:22:01.120 to reduce emissions in in aviation, although it's not straightforward 0:22:01.320 --> 0:22:04.200 at all. First, what we're talking about is intra e 0:22:04.480 --> 0:22:08.760 A maritime, so that is only maritime transport that starts 0:22:08.800 --> 0:22:12.280 and enced within the European Economic Area. We already have 0:22:12.440 --> 0:22:16.080 intra aviation within the EU it t S, and what 0:22:16.240 --> 0:22:19.680 they might want to do is expanded to international aviation, 0:22:19.760 --> 0:22:22.480 although that might be in doubt because of this new 0:22:23.000 --> 0:22:26.840 Corsia offset scheme for international aviation when it comes to 0:22:27.280 --> 0:22:32.359 reducing emissions. Yes, they are. These are sectors that don't 0:22:32.440 --> 0:22:38.200 have an easy access to decorganization technologies. Let's say, but 0:22:38.400 --> 0:22:41.320 we know there are electric ferries running in in Norway 0:22:41.480 --> 0:22:46.120 and elsewhere, so you know it, it's not an impossible feed. 0:22:46.200 --> 0:22:48.840 The idea of expanding is that when you have a 0:22:49.200 --> 0:22:53.960 larger market, you have more effective price formation and these 0:22:54.400 --> 0:22:57.639 markets will probably be protected by free allocation in in 0:22:57.720 --> 0:23:00.320