How other companies manage EU ETS costs
The EU ETS is designed to put a price on emissions that allows companies to quantify the financial impact, and pass these costs through or take decarbonisation steps towards a competitive advantage.
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The market however, is volatile, with prices frequently moving by a good €5 in a week, which makes estimating the cost of a tonne of CO2 difficult.
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Set your EU ETS strategy
Manage the EU ETS according to your business needs.
After opening an EU Registry Account, compliance buyers can consider a variety of approaches to managing costs efficiently.
Carbon Risk Management
To gain some predictability, compliance buyers typically aim to either a) match or beat the average market price, b) match or beat a reference price, or c) match carbon costs to fuel costs.
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Most compliance buyers favour spot transactions for their ease and lower cost by comparison with derivatives. Two possible approaches to managing carbon risk using spot EUAs are shown below.
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Buyers can also use derivatives as risk management tools, though these are more complicated and potentially more risky in nature. Options, for example, could be used to guarantee an average EUA price compared to the market.
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Cashflow
Cashflow is another consideration: we offer flexibility on payment terms for EUA purchases, where a buyer might be able to agree a favourable price now and delay payment until a more advantageous time.
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Example of basic alignment of costs with emissions:
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Regular purchasing allows a price close to market average to be captured
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No need to watch the market, or attempt to pick a 'good' price
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Save time - agree purchasing schedule up front
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Know your average price of emissions
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Periodic payment - low administration
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Example of using reference price and managing cashflow impact:​
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Quote a reference price in a contract with your customers
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The EUA Settlement Price is a useful reference to use
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Eliminate market risk
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You are guaranteed to receive EUAs at your reference price
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Transparent carbon pricing: the Settlement Price is published online daily
Market knowledge
We help your preparation for the EU ETS, from account setup through to understanding financial charts, the fundamentals that lead to higher and lower EUA prices, and identifying opportunities where a strategy could be optimised with a purchase of EUAs.
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Subscribe to the Greenstar Capital weekly EU ETS update for a view on what is driving the market and how EUA prices are likely to develop.
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Examples:
1. carbon cost confirmed at Settlement Price on arbitrary day, or day voyage is fixed for maritime sector
2 & 3 - payment received from customer, EUAs sent after payment.
No cashflow impact.