Emissions
About emissions
The cap-and-trade system was introduced to reduce greenhouse gas emissions. The goal for 2030 is to reduce greenhouse gas emissions by 40% compared to 1990 and achieve climate neutrality by 2050. All EU countries, as well as Iceland, Liechtenstein, and Norway, are included in the arrangement. Each CO2 allowance represents one ton of permitted CO2 emissions. Companies can trade CO2 allowances in the EU’s CO2 allowance registry.
CO2 allowances can be bought and sold through a trading system, with prices determined by supply and demand. This means that companies needing more allowances than allocated can purchase additional ones, while those with excess allowances can sell them if unused. If a company is subject to the CO2 allowance arrangement, they must create an account in the EU’s CO2 allowance registry. CO2 allowances are a financial instrument. Companies have the freedom to choose their trading partners, including agreements on price, quantity, and timing of the transactions.
Hedging emissions
The prices of CO2 allowances fluctuate significantly and have increased significantly since the implementation of the allowances. The price for one ton of CO2 has ranged from EUR 0.01 during the financial crisis to around EUR 100 in 2023.
These large fluctuations can create uncertainty about the ability to adhere to budgets and can impact the bottom line. However, it is possible to hedge the price of CO2 allowances, similar to hedging fuel exposure.
What is Scope emissions?
There are three types of Scope emissions called: Scope 1, Scope 2, and Scope 3. These refer to the various types of emissions an organization can generate.
Scope 1: Describes direct emissions that arise from the organization’s own activities and facilities. This can include emissions from the combustion of fuels.
Scope 2: Describes indirect emissions. This can, for example, be emissions from electricity production through the purchase of electricity.
Scope 3: Describes other indirect emissions linked to the organization’s activities but outside its direct control. This can include emissions from the supply chain or the use of the organization’s products and services.
Why should an organization monitor its Scope emissions?
There can be several reasons why it is in an organization’s interest to monitor its Scope emissions.
Environmental sustainability: Monitoring Scope emissions can help assess and understand an organization’s environmental impact, enabling the implementation of sustainable practices.
Regulatory compliance: In many countries, there are established environmental standards and laws. Monitoring can ensure the organization’s compliance with these regulations.
Long-term viability: By monitoring Scope emissions, companies can plan and implement strategies that ensure long-term business viability considering environmental challenges.
Let us secure your bottom line
We are ready to assist with risk management of all kinds of energy products and services, so if your company’s budget is affected by energy price fluctuations, don’t hesitate to contact us!