By David Callaway, Callaway Climate Insights
As the cost of pollution in Europe topped €50 ($60) for the first time Tuesday, Britain announced details of its new cap-and-trade market to open in two weeks, a fourth major carbon market as the cost of polluting finally begins to squeeze corporate budgets.
The UK Emissions Trading Scheme will begin trading on May 19, initially covering pollution from power generators, the aviation industry, and other energy-intensive industries. Britain said last year it would set up its own trading system to compete with the successful EU ETS, and to better regulate carbon emissions within its own sphere of influence post-Brexit.
The UK ETS follows the EU program, a California cap-and-trade system, and comes in advance of one in China later this spring. A spokeswoman for the Intercontinental Exchange, which is running the UK ETS, said that because the UK contracts will be tied to separate emitters from those in Europe, or non-fungible contracts, there is no chance for big traders to arbitrage between the exchanges.
But traders certainly are arbitraging prices on the EU-ETS this year, as they expect costs to continue to rise to the point where some industries, such as steel and chemicals, will find it cheaper to migrate to hydrogen than to use fossil fuels. The cost of carbon on the EU ETS has climbed more than 50% so far this year and some traders see it as high as €100 by the end of the year.
Expect the UK ETS to be a major component of Britain’s pre-COP26 agenda leading up to the big summit in November. And given the City of London’s financial history, a key driver of British attempts to retain financial dominance over Europe as the markets transition over the next decade.
More insights below. . . .
Tuesday’s subscriber insights: A sample of our best offerings
. . . . One day after Moody’s highlighted the potential for a credit squeeze on fossil fuel companies, insurance giant Allianz showed just what it might look like, tightening lending and coverage restrictions on coal producers and users from 2023. Credit risk is only starting to be an issue, but it’s coming fast. Read more here. . . .
. . . . Shareholders of DuPont won a major resolution battle at the chemical giant’s AGM last week, with 81% rejecting management’s recommendation to turn down a resolution requiring more climate reporting. It was the largest shareholder win on an environmental issue to date. Read more here. . . .
. . . . A new UK report on greenwashing revealed some startling statistics on how little major oil companies have invested in renewable energy, despite rosy proclamations and commercials about their energy futures. Chevron, Shell, and Saudi Aramco each come under specific fire for their practices. Read more here. . . .
. . . . Elsa Pau, the Hong Kong financial entrepreneur and CEO of WealthAsia Group, who we profiled a few months ago, launched her new fintech portal for financial advisers and asset managers last week. Among other features, BlueOnion offers a temperature scale which measures the performance of a fund’s assets tied to the Paris Agreement requirements. . . .
. . . . The French government has already started stress testing banks against climate change risks, and while it found they were in pretty good shape, more climate legislation coming from President Emmanuel Macron is sure to add to the pressure. Stress testing is soon to come across Europe. Read more here. . . .
This week in wildfires
. . . . On May 4, the Fire Information for Resource Management System reported four new large incidents in the U.S. and Canada, three large fires contained, and eight large fires uncontained. There were 177 new incidents categorized as “light.” Hot spots included the Eastern Area, with 54 new reported fires, and the Southern Area, with 75. The National Interagency Coordination Center reports as of Tuesday morning more than 68,226 acres were burned. . . .
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