COP, climate policy and EU carbon

Global leaders at COP29 were under a huge amount of pressure going into talks this week following the UN Secretary General public voicing his concerns over the state of negotiations.   

 Criticisms of this year’s talks and the huge scale event that COP has become in recent years begs the question: is COP too big, and does it need reforming? We also discuss Europe's carbon market, current drivers and the reasons why prices may continue to rise. 

 In this episode, Richard speaks to Trevor Sikorski from Energy Aspects and our Carbon Correspondent reports from COP29 in Baku. 

 Host: Richard Sverrisson – Editor-in-Chief, Montel

 Guests: Trevor Sikorski – Head of Natural Gas and Carbon Research at Energy Aspects.

Editor: Bled Maliqi

Transcript

Richard Sverrisson – Editor-in-Chief, Montel: 0:05

Hello listeners and welcome to the Montel Weekly Podcast where we bring you the latest news issues and changes happening in the energy sector. Will Cop29 deliver or will it be a cop out on a global scale? This episode is split into two parts. The first will focus on the UN Climate Conference and the second on Europe's carbon Market the UTS. We're in the second week of cop, and it's fair to say it's been a shaky start. The shadow of fossil fuels has loomed large over the Baku conference. The president of Azerbaijan said in his opening speech that oil and gas were a gift from God. Meanwhile, the G20 Group of Nations met this week in Brazil and avoided any reference whatsoever to transitioning away from fossil fuels. So what is going on? And will COP29 deliver? We'll also be asking if there are any knock-on effects on EU carbon prices in the months ahead and the direction of travel and the main drivers. Our carbon correspondent Cem Bektaş has been following developments on the conference floor at COP29 and has just sent this from Baku.

Cem Bektaş - Carbon Correspondent, Montel: 1:14

I'm in Baku. The Zeri capital currently hosts in the world's largest annual climate change summit. Parties, observers, and media representatives rushed to and from plenary rooms, side events, and press conferences. Meanwhile, leaders have been meeting to try and progress climate talks behind closed doors. The key item on the agenda has been setting the new climate finance target, and the sentiment here has been somewhat pessimistic and frustrating for many delegates. The central debate here is how much money developed nations are willing to provide developing nations annually for climate action after 2025. The new collective quantified goal, NCQG as it's known here, would replace the a hundred billion dollar a year pledge first agreed in 2009. I spoke with Catherine Pettengell, the Director of Climate Action Network UK on the states of NCQG negotiations.

Catherine Pettengell - Executive Director at Climate Action Network UK: 2:03

So we've been really disappointed that the contributor countries haven't come with really concrete proposals about the money that they're prepared to put forwards and what ambitious looks like to them.

Cem Bektaş - Carbon Correspondent, Montel: 2:15

As of Thursday, a new draft text was released for NCQG, although it was still missing an agreed target figure for a final goal, and while COP29 draws an end. It remains unclear what kind of a deal will be reached here. Whatever the outcome for NCQG, COP will still be scrutinized for what it has and hasn't delivered.

Richard Sverrisson – Editor-in-Chief, Montel: 2:35

Now I'm pleased to be joined by Trevor Sikorski, head of Natural Gas and Carbon Research at Energy Aspects. Trevor, welcome back to the pod.

Trevor Sikorski – Head of Natural Gas and Carbon Research at Energy Aspects: 2:43

Thank you. Always nice to be here.

Richard Sverrisson – Editor-in-Chief, Montel: 2:45

So let's focus, first of all on the cop. What are the key issues here for the energy sector more generally?

Trevor Sikorski – Head of Natural Gas and Carbon Research at Energy Aspects: 2:51

For energy this time, it isn't the biggest focus that was dealt with last co-op where there was this a little bit about what could you agree in terms of peaking of energy usage. And it was quite weak when it came out. But I don't think anyone wanted to revisit that because so much time was spent last year. So this year has really been about a few other different things. Some of it about carbon markets. Certainly there was a big component on carbon markets and the, and what are called the Article six negotiations. So that's been a big thing. Then the other thing which has really dominated and will continue to probably dominate this week is really discussions about climate finance and the big financial transfers that are expected to happen between the developed world and the developing one.

Richard Sverrisson – Editor-in-Chief, Montel: 3:32

Yep. That's certainly the key ashes. Why do you think negotiations have been so slow?

Trevor Sikorski – Head of Natural Gas and Carbon Research at Energy Aspects: 3:36

It's been a mixed bag. I think when you look at article six, it actually started out quite well with the first day the host government really pushing through a paper, which basically approved a bunch of standards for 6.4. This is the real kind of what they call the PAC or the Paris Agreement crediting mechanisms. So the actual offset standards that would operate under the U-N-F-C-C-C going forward under the Paris Agreement. So this was quite a big deal. Now that had been. Debated a lot in the last three or four cops and never had been agreed, and it was a little bit of a different approach. So the supervisory body was responsible for putting together stuff, pulled together a set of standards that to, to use for the 6.4 mechanism and basically said, we've approved this now cop carpet's over to you. You can approve this. Or you can reopen it, can renegotiate it, and the Azerbaijan is just a rubber stabbed it and said, okay, that the, that's that's done. We've approved it. A little bit of murmurs, but I think everyone was sick of 6.4 anyway, so it was okay, you've done that. Now six. The other part of the other component of that, which is more kind of interstate transfers is on 6.2. 6.2 is a little bit more difficult, but that also seems to be coming together. So it does seem like. There's a little bit of a head of steam behind Article six maybe where you finish Article six at this cop. It allows those markets then to develop and you move on to bigger ticket items, which are a lot harder, and those harder things really haven't seen. Very much progress at all in finance is the hardest.

Richard Sverrisson – Editor-in-Chief, Montel: 5:12

Absolutely. And for those listeners who aren't aware of Article six, could you explain it concisely, briefly?

Trevor Sikorski – Head of Natural Gas and Carbon Research at Energy Aspects: 5:17

Yes, very briefly on Article six. So Article six is the bit of the Paris agreement that basically allows carbon markets to be a tool to meet for states to meet their obligations. So you can trade effectively emission reductions between states. That's effectively what it's there to do. And it has two components. One, the first component is what's referred to as 6.2. And that's really about the interstate trade of carbon emissions and how that's going to happen. And then 6.4 was a little bit like the clean development mechanism. If you cast your, yeah, your memory back. So it was a crediting mechanism, a kind of offset mechanism that would be managed and run by, by the U-N-F-C-C-C. And so it would be very much like the, it was like the successor to the clean development mechanism. And it, it's more or less should be agreed and people are talking about we should start to see 6.4 credits in 2025 and really then being highly operational from 2026 now.

Richard Sverrisson – Editor-in-Chief, Montel: 6:18

But we're still quite a long way off a global carbon price. Are we not?

Trevor Sikorski – Head of Natural Gas and Carbon Research at Energy Aspects: 6:22

Yeah. So this is very much more like. Offsetting mechanisms almost. There's no defined, the it's a little bit unclear who's gonna be the buyers. If it's just gonna be states that are gonna be buying this, or whether or not you'd be able to use it. Certainly you'd be able to use those types of credits under things like corsea, which is the IKO Aviation Emission Reduction Scheme that's in place. So you, because that's a un. Body it is gonna, it is defaulting to use these types of credits. So there's some niche things, but there's not a huge amount. It's not hugely clear where a lot of demand is gonna come from these, you would see a lot of ESGM money probably wanting to use it, but like you said, it's more kind of that offset mechanism than really saying, and people using it for more voluntary than saying, here's a global compliance carbon price that everyone has to pay.

Richard Sverrisson – Editor-in-Chief, Montel: 7:14

Absolutely. But then the offset market has certainly had a bit of bad press recently. I think it would be fair to say it's a sort of unregulated space where there a lot of trust and integrity has gone. Is this a way of getting that back, get, getting the offset market back on its feet and so it becomes a tool that companies, you said environmental, social governments, et cetera, can use to, to offset their emissions or become a sort of climate neutral.

Trevor Sikorski – Head of Natural Gas and Carbon Research at Energy Aspects: 7:38

Yeah. And that's certainly the hope that this kind of is a reset on a market, which really has, as you've said, has had a number of scandals about environmental integrity. It has stopped growing. It's maybe go getting a little bit smaller, but it's not really. Taking off anymore. And there is a lot of, and certainly there's a lot of skepticism. So it is, you know, there's a lot of hope being pinned on these, on this Paris agreement, crediting mechanism. It won't have really, you know, a big pile of unused offsets from a decade ago. It. In it polluting the offset stream as it were. So it in some ways it, it helps reset it. There's also probably a lot learned from some of the scandals that, that we've seen with the offset market about how to measure some of the key aspects of offsets to make sure they are additional, that they are real with those kinds of things. Is it gonna be perfect? It's offsetting. It's probably never gonna be perfect, but it is. Probably gonna be an improvement. And it is seen as one of the ways of getting, and this gets back into finance a little bit, but a way of getting private capital into that kind of Paris agreement, emission reduction efforts, mobilizing, much more private capital in that And. Really being part of the components of that, those financial transfers into developing countries.'cause that's where, you will find most of those opportunities for doing offset offsetting.

Richard Sverrisson – Editor-in-Chief, Montel: 9:07

This is all occurring against the background, as I mentioned, the introduction of, you know, the President Zer Bajan, who mentioned that oil and gas are a gift from God. You've got the G20 barely making any statements away from fossil fuels or mentioning fossil fuels, even. And you've got the Trump election where he's drill, baby drill. What kind of impact is that having a, on the negotiations and the cop more generally?

Trevor Sikorski – Head of Natural Gas and Carbon Research at Energy Aspects: 9:29

I think bringing it back to the finance question, I think it's having a big impact on the finance que question because it's very hard in a world where climate. Ambition seemed to be somewhat limited. And if anything, going backwards in certain places, it's very hard to, for the developing world, to get the types of financial support they want for emissions, for their, for mitigation and adaptation to climate change. That becomes very hard and it becomes also hard for the developed world to say, here's a big financial commitment that we're gonna undertake. But then we're really unsure of how much the US might contribute to that, particularly if as feared they come out of the Paris Agreement next year. Right? So all of a sudden, this gaping hole where the United States is supposed to be, and it really is. It is, I think a real a tough time to get something as complicated as finance agreed when one of the biggest donors, looks like they're probably gonna disappear.

Richard Sverrisson – Editor-in-Chief, Montel: 10:29

And but do, it's been criticized as a talking shop, but lot, lots of hot air, but no real decisions. That's not just maybe the case for this cop, but also the previous ones. Is it still fit for purpose, would you say, Trevor?

Trevor Sikorski – Head of Natural Gas and Carbon Research at Energy Aspects: 10:42

It is a global problem and it is the UN and there are certain principles which you would say makes it more difficult and certainly. That kind of need for effectively what kind of looks like U unanimity. And that gets bent a little bit usually when people just rubber stamp me. And then you need a very strong host to do that. And you might get a few dissenting voices, but generally that kind of carries, but it is looking for widespread agreement. On anything that matters. And when you start looking at big questions, it becomes, everyone has a slightly different take on it and everyone has slightly different wants and it becomes very hard to get a lot of agreement apart from yes, we must reduce emissions at some point. So it's a, I think by its nature it's a difficult global question. And when you look at how COP structured, it's all about. Peering every voice and making sure everyone's represented. And these are good principles, but it does make getting any type of agreement a lot more difficult. Now, we did see a little bit with 6.4, like having the supervisory ies basically saying, this is agreed now. Crap. It's up to you to reject it as being. A way of getting an agreement on something that was taking an awful long time to get agreement on, which was those 6.4 clause. Some people complained about that, but I think at the end of the day, most people just. Breathe the sigh of relief that, oh my God, we don't have to talk about that stuff anymore. And I think that's maybe a way of going forward. It feels very hard of reinventing this particular wheel of how you do things on an international basis.'cause as soon as you stop excluding people, then they're always gonna complain that it's not representative. And then you have these issues. It is. It's complicated, it's difficult, it's unwieldy. It's become a little bit of a circus. If you look back, even if you look back at cops 10 years ago, you wouldn't basically everyone have to be accredited. You didn't have this big green zone concept of non-accredited people just showing up 'cause. They want to feel like they're at cop. It was basically everyone had to have some degree of Blue Zone effective accreditation, which of course just limited the number of people. I wouldn't say it, it made it any easier to get agreement. It's, this has been a longstanding issue with COP is like, why do you always insist on effectively unanimity? Can't you just push through things? And that being a reasonably difficult thing to do in those types of international negotiations.

Richard Sverrisson – Editor-in-Chief, Montel: 13:10

So what you're saying then, Trevor, is pretty much that we're stuck with it and in this format, this concept of unanimity, including the, of inclusion basically. So there's it's unlikely that it will be reformed or that even though an alternative would be for

Trevor Sikorski – Head of Natural Gas and Carbon Research at Energy Aspects: 13:24

Yeah, I think it's hard. You do have super, you have the sub subsidiary bodies. You have the supervisory bodies. You have a bunch of, almost a civil service in the un f ccc. That are working on these things in between cops and trying to, and there's lots of working bodies and workshops and things like this, which are doing an awful lot of work. And then they would take things to COP, which had 15 different positions in it and it was very hard to not narrow that down. So I think there are ways maybe of just. Of making more, making decision, making a little bit more efficient than it is now. It couldn't be less efficient probably, but a bit more efficient. But I think that general as a general forum, it's hard to see what would replace it.

Richard Sverrisson – Editor-in-Chief, Montel: 14:05

Yeah. And maybe there are, there's a wish for more urgency as well, because around us the world. Burning, it's flooding, it's drought. Really. There is a desire for action rather than words. And then cops may be not the best place for that.

Trevor Sikorski – Head of Natural Gas and Carbon Research at Energy Aspects: 14:18

Both the way the Paris is, the agreement is structured and in reality what it really needs is domestic governments to really do things right. And this is where your action is, right? And this is, this becomes the problem. And I would think it's one of the problems that we're living with at the moment is when you look at. The spread of right wing populist governments around the world, they tend to be quite climate skeptic. And that's really slowing regardless of what the Paris agreement's saying. That is. That is what is slowing act activity on finance's is really nothing to do with cop, but it's everything to do with individual states and what individual states want to do in terms of their climate ambition, and that's the thing that's begun to slow down quite a bit and that's often hard when you have difficult economic times and certainly there's been lots of geopolitical upheavals in the last, over the last couple of years that have made, that have slowed the global macro economy down and that, it is always harder to be ambitious on things that are gonna be expensive when the economy is doing less and, let's be honest, the energy transition, generally is not gonna be cheap.

Richard Sverrisson – Editor-in-Chief, Montel: 15:32

Absolutely. And you mentioned Donald Trump as expected, probably pulling the US out, the Paris Agreement, which would leave a gaping hole in, in, in the financing of clean energy or decarbonized projects in, in, in the developing world. But is there anything of relevance at COP to the EU ETS before we launch into the carbon market discussion here, Trevor?

Trevor Sikorski – Head of Natural Gas and Carbon Research at Energy Aspects: 15:51

Yeah, not really, which is the, we always go. Yeah, it's cop time, but it means nothing for the ETFs. And this probably just goes back to that previous point is really about what are states actually doing right? And so things, what happens in Brussels is really important for the EU ETS if it's not happening in Brussels, it's really on a policy basis, isn't really important for the ETS. And you're not really, I don't think the EU is not in a position of coming out and saying this time around this is what our 2040 target is. Because they haven't. Agreed it yet, and they've started the process in in, in the, under the last parliament. But they haven't, they didn't finish that. It was up to the next parliament, to the current parliament to do that. And of course, the current parliament, I was still just trying to sort out who's gonna run the stuff, but we'd expect that 2040 target setting to be done next year. Yeah, I don't think it's gonna throw many surprises out. We probably think it will be a 90% reduction on 1990 targets for the block as the climate target. That's gonna be important for the EU ETS 'cause that will determine the longer run cap trajectory. Under ETS one and under ETS two, which we'll start in 27. So all of those things to play out.

Richard Sverrisson – Editor-in-Chief, Montel: 17:03

What's happening in Brussels and the corridors of power there, the imaginations and behind the, in those smoke filled rivers, maybe not very much smoke filled rooms anymore, but vape filled rooms. Yeah, exactly. In the European Commission and parliament. But Trevor, then moving on to, to the ETS itself and European carbon prices. So we are seeing, we're not uptick in prices, they're touching the European 70 euros a ton. Do you, what are your expectations for the coming weeks and months? Could it hit a year high 20, 24 high, or are we gonna drop below 60 again?

Trevor Sikorski – Head of Natural Gas and Carbon Research at Energy Aspects: 17:33

I don't think we're gonna. Drop below 60 week. I think it's around our fair price that, that we'd put for the year, the EU ETS market. I think what's been interesting about it this year is fundamentally, it hasn't really done all that much in, in the sense that if you look on margin, on the marginal bits, you'd say supply was up, emissions were down. That's never gonna be the very supportive set of marginal indicators. But when you look at what was actually happening on a balance basis, it was balanced this year. You're maybe plus or minus. 10 million tons in terms of the call on surplus or the addition to surplus. Really a little bit dependent on how these next two months go. That's how finely balanced it is to whether or not we will see, like I said, we're gonna probably see another 40 to 50 million ton reduction in power emissions. That's a big number, not nearly as big as what we saw in 2023, but that had a lot of supportive things that was coming into it, supporting that big reduction. What were those supportive areas? It was everything from it being mild, wet, and windy. You know, so that was taking stuff down to huge amounts of solar and wind coming in. But with all those big additions to solar and wind, because it was so windy, particularly in Q4 of last year, you had these, it had this massive impact on, on power sector emissions and was driving those down. In this year, you're seeing a more normalized kind of, of slightly out normal actually wind speed's going through Q4 so far,

Richard Sverrisson – Editor-in-Chief, Montel: 18:56

and if this week's weather's anything to go by, it could get cold.

Trevor Sikorski – Head of Natural Gas and Carbon Research at Energy Aspects: 18:59

Yeah. And the forecast are a little bit warmer, but, so I think. It the fundamentals weren't doing very much in terms of is it adding to surplus or reducing surplus? Is the scarcity of EUA is changing? And you say it didn't really change very much in 2024, but we did see prices trade in a range from like 50 to, to almost 80. So you're looking at a huge trading range for something that basically traded sideways. Right within that huge range of going up and down and up and down. And what we saw, I think this year with really for the was really the impact of a lot more kind of algorithmic high frequency trading coming in that was really being, that was really following trends and was following simple indicators and things like this and would just move very quickly. And so we've seen the CTAs or the commodity trading advisory, say a brand of kind of. The investor community that's less discretionary is more algorithmic. Going from being 15 to 20 million tons of net length to 20 million tons of net short over this period in those 40 million tons swinging helped drive all of that volatility. Now we're in a place and the discretionary guys starting off the year pretty much net short everyone, because everyone was a bit bearish. Most of that's come out of the market because we are into a place where. We're not quite saying 25 is gonna be a massive bull year for the market, but certainly 26 we think probably is a reasonable bull year for the market.'cause you are gonna have an adjustment to supply coming from the, from free allocation. So you're looking at a 26 bull year, people are 24. You're not gonna. Move bullish. At some point in 25, the discretionary guys start going more along, but we're only a couple of, we're only a couple weeks away now from the expiry of the debt contract, which is still the one that has most of the liquidity in the marketplace. So we can't see a lot of people swinging that. December 24. Probably too much in the next couple of weeks, but I think over next year we would probably expect a lot of volatility again, because the CTAs are still gonna be around, we're probably a little bit more biased and we'd think probably a higher average price over 25 than what we've seen over 24.

Richard Sverrisson – Editor-in-Chief, Montel: 21:10

When you say CTAs, what for those not familiar with that term? What? What do you mean there, Trevor?

Trevor Sikorski – Head of Natural Gas and Carbon Research at Energy Aspects: 21:14

Oh, they tend to be hedge funds, right? People with a lot of capital, but people who will trade much more with algorithms as their kind of guiding principles. So they'll have a lot of stuff to, to, they tend to be quite highly trend following. When the prices were going down, they would jump on that and they would go down with it. When prices start to go up, then they start to come out of those positions a lot faster than. The more traditional speculative trader, which will understand the balances, have a fundamental view and will hold that fundamental view until something fundamentally changes that this is much more about driving a lot of volatility and benefiting on that volatility, and that's effectively how they're trading and it's, we have a nice little quant service which breaks out. Investor data that comes out of the commitment of traders reports and identifies that stuff, which looks like it's trading effectively on patterns so you can get a good handle for what they're doing against what the discretionary guys are doing.

Richard Sverrisson – Editor-in-Chief, Montel: 22:10

What does CTA actually, what does that stand for?

Trevor Sikorski – Head of Natural Gas and Carbon Research at Energy Aspects: 22:12

It's a "commodity trading advisor". Okay. That stands for, but it's,

Richard Sverrisson – Editor-in-Chief, Montel: 22:17

thanks for clarifying that. That's the one thing about the carbon market, certainly there's a lot of jargon and acronyms in there.

Trevor Sikorski – Head of Natural Gas and Carbon Research at Energy Aspects: 22:23

Indeed. Although I'd say like a lot of. There is that kind of, we do see a lot of CTA, that kind of CTA trading in a lot of the other markets that are around. So you see a lot of it. TTF this year has had a lot of it for gas and certainly oil because everyone trades oil, these guys are involved in oil, so that kind of algorithmic trading, just becoming with ai, getting better with those models, getting a bit better. You do see a lot more of that coming into the market. And this year I think it's been a big driver.

Richard Sverrisson – Editor-in-Chief, Montel: 22:52

And and certainly in, in intraday power markets, a de power markets. Absolutely. Yeah. There's huge amounts coming in that would, we've seen, just this week. I think that the positions have gone from short to long as well with this kind of investor community, which may indicate exactly what you're saying, that there are expectations of tightness and tightness in supply. For certainly 26. But 25 being that year when you transition maybe between balance to shortage, if that's a fair way of putting it. Trevor, what should market participants really be looking at? What are the key drivers here? Is it gonna continue to be gas? We're in a quite precarious geopolitical situation at the moment with potential escalation in Ukraine. The gas transit deal, the OMV deal or the gas pro issue, is that something that, that, that carbon market participants should be looking at? The main thing is the gas rather than just also obviously the weather. It's fundamentals of supply and demand.

Trevor Sikorski – Head of Natural Gas and Carbon Research at Energy Aspects: 23:43

Gas is, and I think this ties in a little bit with that algorithmic trading, because you would have in those algorithms certain things, which would be stuff that triggers you to do that. And I think one of those things has been the correlation between gas and power, right? So if the ttfs moving. You move it up. If c ewas are moving, you move tt EF up. Those kind of relationships probably being there and that's been very strong this year. We've seen a lot of gas and carbon correlation now in the short term, that's probably gonna continue to hold. And like you said, I think if you look at gas prices, we'd already, we've for a long time had as our base case and we were slightly adamant that Russian gas was gonna disappear from the Ukraine. On the 1st of January, you know that will, that's the default. We found it very other stories around replacing it with azeri gas or something like that. Logistically and contractually, incredibly difficult to do, and we never really bought into any of those stories. Despite what of other people?

Richard Sverrisson – Editor-in-Chief, Montel: 24:44

By, by vote. By, by, and then some news agents reporting on it as well.

Trevor Sikorski – Head of Natural Gas and Carbon Research at Energy Aspects: 24:48

Exactly. A little bit too vigorously reporting on it. The risk around Russian gas is less just because it was expected to fall off massively. It fault to zero going through the Ukraine anyways, on the 1st of January. Now we're not that far away from the 1st of December. So you are looking at, you're looking at five or six weeks of potential disruption and you saw. With the OMV announcement last week the market moved a couple of euros, but it didn't go skyrocket because everyone was, we expected to disappear anyways. It just might be disappearing a month and a half earlier than we expected, which isn't, which is a lot different than back in July where it. Wow, it could disappear 18 months faster than expected. Right. And it was, that risk has sat there in the market and it's probably now reasonably well priced. And we have seen the gas continue to float to a lot of, which I would say interesting, but there's a little bit of risk. But I would say it's reasonably modest from that you still have risks around the Middle East and, but again, it felt like some of the really big risks like. Closing the strai of Es and stuff like it's, you can almost never see that happening, right? There's always that threat there. Very difficult to make that happen. And if Iran really wants to have everyone in the region hate them, that's one of the ways of going about doing it. You would make an awful lot of enemies in the region as well.

Richard Sverrisson – Editor-in-Chief, Montel: 26:10

So you think that's been overblown that, that threat then, do you think that threat's been overblown?

Trevor Sikorski – Head of Natural Gas and Carbon Research at Energy Aspects: 26:14

I think it's a, yeah, it's a little bit overblown. I don't think that's, particularly on the gas side, that's probably unlikely to happen on the oil side as well. You have a lot of big powers that would want to stop that from happening, so I think it didn't feel the biggest risk. And there was other risks. There was risks around Israeli supply. If you take that out, then you probably increase the Egyptian coal on. L and g, which again would be a little bit of a risk for European supply, but that's probably a bigger risk if things really escalate. But those kinds of things, they felt bigger, at other times this year than they feel right now in the Middle Eastern situation feels a little bit quieter, but.

Richard Sverrisson – Editor-in-Chief, Montel: 26:54

The final question really I'd like to talk to you Trevor about is decarbonization pathways to, in the medium to long term, especially given the growing cancellations of green hydrogen projects. As we mentioned before, we started recording a lot of the projects that have been announced to great fanfare didn't actually receive any fis or final investment decisions. And you've got countries such as Germany that have seen the need to balance. The grid balance the system when there is scarcity, when there isn't enough power from renewable sources such as wind or sun. The dunkel fluter phenomenon that they call it in German, how does that affect a decarbonization going forward? Carbon abatement and carbon prices, Trevor?

Trevor Sikorski – Head of Natural Gas and Carbon Research at Energy Aspects: 27:40

Yeah, a very good question. We say at the moment we're having this kind of three speed transition where you have one thing going really fast, which tends to be renewable power. So you got lots of wind, lots of, particularly lots of solar, probably a hundred gigawatts over the last two years being added in the eu. You look at that, a kind of stagnant power side, and that is causing a lot of. Problems in the power market, and it has been one of the reasons why carbon prices are probably about 20 euros softer between this year and last year. Is it, those are going very fast and you have a number of things which are going, let's say mid speed. So the, and these tends to be more on the demand side for power, but that's still EVs, which in 24. Slightly, the kind of growth, particularly of battery only flattened out a little bit though they've stopped really growing as fast as they did in the last couple of years. And in heat pumps, which again really peaked in 2022, slightly less than 23 and then probably slightly less again in 24. So technologies which have seen a real growth. But are stagnating. And I think for EVs, you, what you really have to get right is just the cost of capital. You need to get those things cheaper, to get them into, in, into more parts of the automobile market. And probably with heat pumps, you are getting it slightly out of that world of early adopters and getting it more to be a kind of default solution for a lot of people, which it still isn't in a lot of countries. And then you have things which aren't going at all. And those, again, tend to be on the power demand side. So if you're looking at electrolytic hydrogen, we haven't seen really any FDS in that, as you've just said. And that's problematic. So that's not going, so that's not adding very much in terms of power demand, and you're not seeing very much in terms of cc, that's not really that much of a power story. But again, we're not really seeing a huge amount of FID going into CCS at the moment despite a lot of European money being. Designated to both CCS and hydrogen and we're just not really seeing them going out. But what that's doing is creating this kind of very imbalanced power system where the power demand components of the transition aren't showing up very quickly, but the power supplied components of that are showing up, up really quickly and you are getting these imbalances and they are the symptom, as you were saying, of things to come in this market, right? Because you, if you continuously add. Supply and demand is stays, doesn't start to increase quickly. Then of course what you end up doing is you end up really crushing spreads, and we've seen that compression already very hard to keep coal and gas commercially on the system. And the only way you keep them on the system is if you give them some ancillary revenue for backup. This current part of the transition hasn't been particularly supportive for carbon prices or anything like that because you're seeing demand growing a little bit from EVs and eat pumps, but not really very much and nothing from the other components. But we are just getting these huge amounts of supply. So it is, I think that's a real, and what it's doing, of course. That, that compression and power in all of those kinds of things. Now, does that turnaround? Has the turnaround at some point. And if it doesn't, then the backs, the backdrop of all of that is the carbon market. And if you still say, we're still gonna run with very high, a reasonably high level of industrial fuel use, without that being abated. And we're gonna run with very high levels. Not very high level, but we're still gonna run with a lot of un unabated gas for balancing. All of a sudden, these very low caps that the ETS EU ETS is expecting by 2039, 2040, 2041, around there is when you get to a zero cap and then all of a sudden. How does that balance? Right? And then all of a sudden you need these very high carbon prices to either get people to do a lot of CCS or a lot of direct air capture or something, or even starting to invest more heavily in, in these other technologies like hydrogen, which at the moment are just commercially not ready and need a lot of investment on both, on all aspects of that value chain to make work. And that's why they haven't really. Happened yet because it is far more complicated than just building solar panels. You need a whole lot of stuff to happen to make those works, and that's really difficult. And you have this world where actually you could have reasonably low power prices and particularly at some point when gas is not setting. The power price in very many hours, but you can have really high carbon prices as a backstop to say, look, we have to get rid of everything that's emitting, and that's gonna be an interesting kind of battle to or to see.

Richard Sverrisson – Editor-in-Chief, Montel: 32:33

But yeah as you say, Trevor, it's probably. I dunno if it's easier, but it's certainly in the long run it'll be much cheaper and more effective to get started now rather than wait to 15, 16 years down the line when a, it's gonna be far very much more expensive and hard to achieve as well. I think so. It's better to start early doors as they, they say it.

Trevor Sikorski – Head of Natural Gas and Carbon Research at Energy Aspects: 32:53

It is, but, and I think it's an interesting point 'cause socially, and this is probably why it fit for 55 and Repower results we'll put a lot of money available, but even. A lot of these things not taking FIDs and. And canceling are things which have received quite significant levels of promised finance. And even then commercially it doesn't. It looks undoable. And this is the problem with being the first mover there. So the first mover, you have a lot, it's a lot more expensive than if you wait for that technology to become commercialized and then all of a sudden that's a lot easier to invest in you unless you're manufacturing this stuff. You don't get benefits from being the first mover, you just get additional calls.

Richard Sverrisson – Editor-in-Chief, Montel: 33:38

Yeah, absolutely. And that's it's very complex and obviously very daunting. Thank you very much, Trevor. It's great to have you back on the pod. I could keep discussing this for hours, but I think we have to draw it to a close, but thanks. Thanks very much Trevor. Great to have you back. Yeah,

Trevor Sikorski – Head of Natural Gas and Carbon Research at Energy Aspects: 33:51

thank you very much, Richard.