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Europe's record-breaking heatwave brought extreme temperatures, deadly wildfires, and surging energy demand. Power grids across southern and eastern Europe faced stress as cooling needs soared, boosting reliance on gas and solar. However, rising sea temperatures may reduce solar output, increasing fossil fuel use. The heatwave has intensified carbon market activity and highlighted the urgent need for climate resilience.
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Europe's record-breaking heatwave brought extreme temperatures, deadly wildfires, and surging energy demand. Power grids across southern and eastern Europe faced stress as cooling needs soared, boosting reliance on gas and solar. However, rising sea temperatures may reduce solar output, increasing fossil fuel use. The heatwave has intensified carbon market activity and highlighted the urgent need for climate resilience.
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Despite the weak economy and mild winter, we believe the decline in EUA price has been excessive and driven by speculation. The market is ripe for a short-covering rally. The longer-term policy path is extremely supportive for tightening the market, widening demand and, therefore, we believe prices will rise past previous highs in coming years.
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Diversifying with low correlation assets could provide the only ‘free-lunch’ in the world of investing. Carbon markets have a very low level of correlation with traditional assets and thus make great candidates for diversification. The various carbon markets around the world also have a low level of correlation between themselves and, therefore, several carbon markets could be considered for inclusion.
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After two years of negotiation, the ‘Fit for 55’ legislative package designed to reduce greenhouse gas emissions by 55% by 2030 relative to 1990 levels is about to become law in the EU. It will tighten the Emissions Trading System and should be price positive for EU Allowances.
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California has an ambitious decarbonising goal: to reduce greenhouse gas (GHG) emissions by 85 percent below 1990 levels, no later than 2045. Its cap-and-trade market, that uses California Carbon Allowances (CCA), is a key policy tool to achieve this goal. The 2022 Scoping Plan for Achieving Carbon Neutrality was signed in November 2022 and lays out a path to cut emissions aggressively. CCAs have the potential to play a larger role in the policy toolkit than ever before.
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Limiting global warming to 1.5 degrees Celsius will be a collossal challenge and will require the implementation of multiple solutions. If stabilising climate change is the primary goal, huge investment will be required into low-carbon technologies and infrastructure. This blog explores the key themes driving the energy transition towards the goal of a 1.5 degree future.
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