“Fit for 55” Reform Rejected, VCM Credit Standardization for Corporate Buyers
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On Wednesday, EUA prices saw their biggest gain in two weeks, hitting €86.20 ($89.50) at market close. These gains come amid a hectic time as EU policymakers seek to reconsider their reform policy for the EU ETS under the recently tabled “Fit for 55” package. That said, traders have downplayed the impact of the reform process on the market and instead point to firmer fundamentals supporting recent price moves. Nonetheless, it is worth discussing what is in store for the EU ETS reform after last week’s vote.
On June 8, the European Parliament voted on the long-awaited “Fit for 55” reform but after last-minute compromises to the package watered down its original objectives, a majority decided against the proposals. The package seeks to raise the ambition of the EU’s climate policies to help achieve an economy-wide cut in emissions of 55% from 1990 levels by 2030; included in the file are key provisions designed to expand and revise the EU ETS.
All is not lost after the failed vote, as lawmakers agreed to resubmit changes to the ETS reform. The European Parliament is already set to vote for a second time on the ETS reform on June 22. Senior parliament members from the three largest political parties came to a provisional deal on the reform that addresses the main points of contention from the last voting session by calling for an earlier timeline for phasing out free allowances and a slightly tighter annual cap. In parallel, the Council of member states is expected to discuss their positions on the package proposals at a June 28 meeting.
Once both the Parliament and Council come to a conclusion on their respective positions, we can expect “trilogue” discussions in the European Commission to finalize the bill to begin after the summer break, and for the law to perhaps be adopted around the end of the year.
Worth noting, the vote also rejected the amendment seeking to restrict non-compliance participation in the market for physical EUAs, which is now subject to an impact assessment to be carried out by the Commission. Keep in mind that 1) the European Securities and Markets Agency (ESMA) already investigated the role of speculative traders in the EU ETS, and its report found no signs of any abnormal or abusive trading. And 2) that non-compliance entities prefer the futures/ derivatives contracts not the physical market so it’s an odd choice to propose such an amendment.
California’s Air Resources Board is due to meet later in June to discuss the draft Scoping Plan, which lays out proposed changes to the market through 2030.
Some critics have noted that the Scoping Plan sees a diminished role for the cap-and-trade market in the latter part of the decade as more removals-based technologies reach maturity. However, others note that the Plan foresees the erosion of the permit glut by 2030.
The Voluntary Carbon Market Integrity Initiative (VCMI) published a "Claims Code of Practice" draft offering standards for corporate buyers to adopt when buying carbon credits.
The VCMI code presents a four-step guide for corporate buyers on how to make “credible” claims for using offsets to neutralize emissions and how to claim offsets for Scope 3 emissions.
Similar efforts have been undertaken by the Science Based Targets initiative, while the Integrity Council for the Voluntary Carbon Market is also preparing a set of guidelines for the market.