Cap and Trade

Many governments around the world are looking for ways to incentivize reductions in greenhouse gas (GHG) emissions and two approaches have received the most attention: cap-and-trade and a carbon tax. The European Union (EU) has chosen the former, Canada has opted for the latter, and the U.S. — well, that’s still to be determined. It’s logical for oil and gas producers, refiners and others in carbon-intensive industries to wonder, what does it all mean for us? In today’s RBN blog, we look at Canada’s carbon tax (which it refers to as a “carbon price”), explain how it works, and examine its current and future impacts on oil sands producers, bitumen upgraders and refiners. 

Global gas and LNG prices are currently at record high levels. If we sound like a broken record, it’s because this epic bull run that started in the spring, has been roaring in recent weeks and showing little sign of slowing down. European prices have hit new post-2008 or all-time highs more than 25 times since late June, and prices in Asia, which had been at seasonal all-time highs for most of the spring and summer, finally last week also topped its previous all-time record from last January. A confluence of bullish factors, including high global demand, low storage inventories, weather events, and supply outages, have all contributed to the surge in gas prices. While many of these are near-term drivers and will eventually flip in the other direction, there is one bullish driver of global gas demand — European carbon prices — that will remain a constant in the years to come. That is by design because the carbon market is meant to serve as an incentive for the industry to seek greener solutions over fossil fuels. In today’s RBN blog, we look at the European Union’s Emission Trading System (EU ETS) and how it interacts with the global gas market.

Last week (Feb 19, 2013) we explored California’s cap-and-trade program for Greenhouse Gas emissions (GHG) and saw that it has already increased electricity prices by 20% and pushed up the cost of refining a barrel of oil by $0.78/bbl.  These developments are just the tip of the iceberg.  California’s program will impact regional natural gas demand and basis.  Companies will shift the locations where crude oil is processed.  Power imports into the California market from the Pacific Northwest will soar.  Today we’ll dive even deeper into the emissions market to better understand the outlook for GHG pricing and how the cap-and-trade rules are likely to influence all sorts of energy and fuel markets.

On January 1st, 2013, California’s cap-and-trade program for Greenhouse Gas emissions (GHG) went live and West Coast energy markets entered a whole new world.  Wholesale electricity prices in California increased 20% as a result and other energy markets have felt the impact.  For example, the new rules pushed up the average cost of refining oil by $0.78/bbl.  For companies subject to the regulations, the bottom line is that if you generate GHG, you pay.  But exactly who pays, how much you pay, and when you pay are all subject to a dizzying array of rules and regulations.  Today we’ll navigate the turbulent and uncharted seas of California cap-and-trade markets.