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Watch: Barron’s Senior Energy Writer Laura Sanicola and OPIS Chief Oil Analyst Denton Cinquegrana discuss what’s ahead for oil this week.

Transcript:

LAURA SANICOLA: Hi, everyone. This is Laura Sanicola, author of Barron’s Energy Insider. Joining me today is the chief oil analyst at OPIS, Denton Cinquegrana. Denton, it’s sort of hard to avoid talking about the devastating wildfires in LA, the tragedies happening in the second largest consumer of gasoline in the US behind Texas. What do you think is the long-term impact to the supplier demand for oil in California?

DENTON CINQUEGRANA: Well, first of all, hello. Good to see you again, Laura. And let’s not minimize the human tragedy that’s taking place out there. It’s very sad to see all the videos, etcetera. But, from our world, fortunately, there’s no refineries that are in the direct line.

The closest one might be Chevron’s El Segundo refinery near LAX airport, but that’s still quite a ways away from from where the fires are taking place. There’s a couple of pipelines, natural gas and crude oil pipelines that run in the area. But, again, long-term threats to those don’t appear to be there right now. The Kinder Morgan pipeline system that does remove refined products from those refineries in the Los Angeles and Long Beach area to places like Las Vegas to Phoenix, that pipeline is shut down right now. So I do think you might see some supply situations in those parts of the country. However, they’re probably gonna be pretty short lived. The only reason why the pipeline is down is because they lost power. But once power is restored, they’ll start moving moving barrels back out to those outlying cities.

SANICOLA: And outside of California, things are really chilly here in Washington, DC. It’s hovering around freezing. I’ve noticed that’s caused an uptick in natural gas prices in the US and Europe as well. What’s going on there? Is this a structural change to the market finally giving a boost to natural gas and heating oil, or do you think it’ll be short lived?

CINQUEGRANA: Probably gonna be short lived. But if you look at some of the longer term forecasts, January, you’re gonna see much of this throughout the remainder of the month. I’m pretty cold myself here in New Jersey working from my home office here, but it’s pretty chilly out there right now. There’s no changes really set to come for at least the next two weeks. So heating oil sales have been brisk in the northeast.

You even have snow falling in Dallas right now. You have a winter storm alert for Atlanta. So these are parts of the country that don’t necessarily see this type of weather. Obviously, over the last couple years, you’d see a day or two in a row of of really cold weather, but this is one of the longer strings of intense cold weather in quite some time. It’s gonna be a short term boost for heating oil demand, obviously, natural gas demand as well.

But for the time being, it’s really been a help for refiners who have seen their diesel crack spread based on the futures market jump up to about 26 dollars a barrel. That hasn’t been seen since early July and it’s really helping what has been a gasoline market that has really been limping along for probably the past, you know, 60 to 75 days as far as refining margins are concerned.

SANICOLA: Right. And, of course, cold weather, negative impact on gasoline as people are holed up in their houses, but the impact for refiners on higher diesel sales, probably something that they were really needing in the first quarter as demands remain weak for other products, as we’ve talked about.

CINQUEGRANA: Absolutely. Yeah. Gasoline demand in January is typically the lowest of the year. And switching back to California, you’re probably gonna see an impact on gasoline demand there. Again, short term, but for the time being, you would expect to see gasoline demand take a little bit of a a drop there.

SANICOLA: Alright. Well, let’s hope those fires are contained soon, and thanks again for joining me, Denton. We’ll see everybody next week.

The New York Harbor spot refined products market, which has long depended on imports, has started off 2025 with uncertainty over whether the U.S. will impose tariffs that could force the region to look for alternative sources of supply.

President-elect Trump has promised to impose tariffs on Canada and Mexico and many market participants in the Northeast will be watching to see whether he makes good on the proposal and what effect that will have on market dynamics.

The East Coast (PADD 1) relies heavily on product imports from Canada, which over the first nine months of 2024, supplied the region with 29.508 million bbl, according to Energy Information Administration data.

Over that period, Canada was the third-largest exporter of finished gasoline to PADD 1, trailing only the Netherlands and Norway, EIA numbers showed.

EIA said Canada’s imports of finished motor gasoline into PADD 1 through September totaled 3.154 million bbl, or more than 14.5% of the total.

Canada led all exporters in sending jet fuel to PADD 1, accounting for 2.553 million bbl, or 43.4% of the region’s total imports in the first nine months of 2024.

Petroleum analyst Philip Verleger in early December said potential tariffs on Canadian and Mexican imports could increase the cost of crude oil from both countries by $16/bbl.

Irving Oil’s refinery in New Brunswick, Canada, and Valero Energy’s refinery in Quebec, which EIA said account for bulk of distillate and gasoline exports to PADD 1, would also be impacted by tariffs.

In addition, any tariff-related decline in Canadian gasoline exports to the U.S. could lead to higher shipments of Gulf Coast Products to the East Coast via Colonial Pipeline’s Line 1, a development that would likely increase the cost of moving fuel to the region.

Line space costs on Line 1 in 2024 peaked in mid-April at 12cts over tariffs and remained at a 10ct or more premium to tariffs for five straight days. For much of the fourth quarter, space on Line 1 was at a premium to pipeline tariffs.

East Coast market participants will also be watching to see whether the price of jet fuel in the Northeast will remain under pressure. Barge, Buckeye and offline Colonial spot jet fuel prices in late November fell to $2.1493/gal, down more than 90cts from where they were trading at the same time in 2023.

New York Harbor jet fuel in 2024 hit a peak of $2.92/gal on Feb. 9 at $2.92/gal, when it traded at a 3.5ct discount to the NYMEX. That was well below the 2023 peak of $5.64/gal reached on Jan. 26.

Spot jet fuel values in the Northeast did not fall below $2.10/gal in 2023, with the year’s low coming on May 4 at $2.13/gal. In 2024, prices slipped below $2/gal on three days, with a low of $1.98/gal coming on Sept. 10.

Market participants in the new year also will be keeping track of developments at the 650,000 b/d Dangote refinery in Nigeria. The new facility is working to produce gasoline and diesel that meets U.S. and EU specifications, but when that will happen is unclear.

One market participant said refining margins on gasoline could suffer if and when products from Dangote arrive. “That is what happens when complex refining grows at the rate that it has … with Dangote. The weak basic refiner gets squeezed,” he said.

The U.S. jet fuel market in early 2025 is expected to continue the pattern set over the final months of 2024 — slightly lower prices even as demand increases, according to market sources.

In addition, the sources said fuel prices could see some swings in the new year as airlines make progress in introducing sustainable aviation fuel as part of their drive to achieve net-zero carbon emissions.

While market participants acknowledged that price spikes could occur next year in response to refinery issues, most expect downward pressure on prices will likely continue. In the first quarter of 2024, OPIS jet fuel spot prices across the major markets averaged just over $2.73/gal. By the third quarter the average price had fallen to $2.33686/gal and continued to decline into the fourth quarter.

The International Air Transport Association estimated the average cost of jet fuel next year will be about $87/bbl, or $2.0714/gal, well under 2024’s lows. IATA also said that the cumulative cost of jet fuel in 2025 will be $248 billion, nearly 5% below 2024. At the same time, the industry said it expects fuel consumption will rise by 6% next year to 107 billion gal, a number in line with what airlines’ have been reporting over the last several quarters.

Refinery problems, however, could upend the expected price decline, at least temporarily. In late January and early February 2024, West Coast jet fuel spot prices shot higher after Marathon Petroleum reported problems with the jet fuel hydrotreater at its 382,000 b/d Los Angeles refinery. OPIS assessed LA and San Francisco spot jet fuel prices rose to about $3.65/gal, while Pacific Northwest spot values surpassed $3.80/gal. Those prices didn’t last long and continued to drop for the rest of the year, leaving LA and SF spot prices at times below $2/gal.

The story was similar for Chicago spot jet fuel prices, which soared in the first quarter due to issues at BP’s 440,000 b/d Whiting, Ind., refinery. The spot price jumped to as high as $3.18/gal and spiked above $3.30/gal in mid-March as other refineries in the region reported issues. But, as was the case on the West Coast, the high prices were short-lived.

After those early spikes, U.S. spot jet fuel prices only topped $3/gal once in Chicago and that price held for just a day.

Average moves in U.S. spot jet fuel prices between late January and early February were 6.89cts/day, while the price moves over the last few months of 2024 averaged just 3.82cts/day.

Jet fuel demand has also stabilized as air traffic has largely recovered from pandemic lows. The Energy Information Administration estimated jet fuel demand averaged about 1.65 million b/d in 2024, 2% above the 2023 average of 1.617 million b/d.

IATA estimated demand for air travel in the new year will rise by 8%, with an estimated 40 million departures globally. That may not, however, translate into a corresponding increase in fuel demand thanks to the deployment of more efficient aircraft.

IATA also said it expects global air carrier revenue in 2025 will top $1 trillion for the first time, more than 4% above projected 2024 numbers. In addition, the industry group projects overall costs will rise by 4% year to year to $940 billion. Of that total, 26.4% will be for fuel costs, down from 28.4% for in 2024.

Increased availability of SAF will be one of the larger issues affecting the airline industry in the new year.

The Carbon Offsetting and Reduction Scheme for International Aviation aims to stabilize global aircraft carbon emissions to 2020 levels. The voluntary first phase began in 2024 and runs through 2026. The second, mandatory, phase, is set to run from 2027 through 2035.

SAF is likely to provide most of the early term emission reductions in becoming more available. IATA said about 330 million gal of SAF was produced worldwide in 2024. That’s double the amount made in 2023 and output is expected to continue to rise in 2025, with IATA projecting production at 713.26 million gal.

Still, SAF production represents a fraction of the airline industry’s total fuel consumption. The 330 million gal made in 2024 is less that one day’s worth of global aviation industry demand of 336 million gal/day. IATA said the actual growth has fallen short of expectation.

Even so, SAF will become a bigger part of the jet fuel market in 2025. IATA reported 70 airlines have signed voluntary commitments to buy about 11.5 billion gal of SAF by 2030.

SAF remains more expensive than conventional jet fuel and will likely boost carriers’ total fuel costs. IATA said the industry in 2024 paid about $700 million to meet CORSIA obligations and projects that will rise to $1 billion next year. SAF is expected to add $3.8 billion to fuel costs in 2025 – more than double the $1.7 billion addition seen this year for SAF use.

“SAF volumes are increasing, but disappointingly slowly,” said Willie Walsh, IATA’s Director General, in a December news release. “But make no mistake that airlines are eager to buy SAF and there is money to be made by investors and companies who see the long-term future of decarbonization.”

As the maritime industry navigates through the waters of decarbonization, the need for strategic investments has never been more critical. The sector is undergoing a profound transformation driven by stringent regulatory demands, technological advancements, and the global push towards sustainability. Read on for an exploration of the journey of maritime decarbonization, the growing trend of investing in dual-fueled vessels, the future outlook of methanol as a marine fuel, and the importance of making informed, forward-thinking investments to stay ahead of regulatory changes and market shifts.

The Journey of Decarbonization in Maritime Transport

The maritime industry’s journey towards decarbonization has been marked by significant milestones, particularly with the expansion of the European Union’s Emissions Trading System (EU ETS) to include maritime transport in 2024. This move has placed the shipping sector under increased pressure to reduce greenhouse gas emissions, driving the adoption of cleaner fuels and innovative technologies.

Over the past few years, the industry has seen a growing commitment to sustainability, with stakeholders exploring various pathways to reduce their carbon footprint. These efforts include the adoption of alternative fuels like methanol, investment in energy-efficient technologies, and the development of dual-fueled vessels capable of operating on both conventional fuels and low-carbon alternatives. As the industry continues to evolve, the need for strategic investments becomes paramount to navigating the complex landscape of decarbonization.

Investment in Dual-Fueled Vessels: A Growing Trend

One of the most notable trends in the maritime industry is the increasing investment in dual-fueled vessels. These vessels are designed to operate on both conventional marine fuels and alternative fuels like methanol, providing shipowners with the flexibility to adapt to changing regulatory environments and fuel availability.

Investing in dual-fueled vessels offers several strategic advantages:

1. Regulatory Compliance: With the EU ETS and other global regulations tightening emissions standards, dual-fueled vessels allow shipowners to switch to lower-carbon fuels as required, ensuring compliance with evolving regulations.
2. Operational Flexibility: The ability to operate on multiple fuel types provides operational flexibility, enabling vessels to adapt to varying fuel availability and pricing conditions in different regions.
3. Future-Proofing: As the maritime industry moves towards more stringent emissions targets, dual-fueled vessels position shipowners to take advantage of new fuel technologies as they become commercially viable, future-proofing their fleets against upcoming regulatory changes.

Currently, there are fewer than 40 vessels capable of using methanol, but hundreds of dual-fueled vessels are on order, signaling a significant shift towards more sustainable operations. According to forecasts, methanol demand for bunker fuel could rise to over 18 million metric tons by 2050, reflecting the growing adoption of this alternative fuel​.

Market Outlook: The Future of Methanol as a Marine Fuel

Methanol is emerging as a promising alternative fuel in the maritime industry, offering a viable pathway to decarbonization. As a low-carbon fuel, methanol can significantly reduce emissions of sulfur oxides (SOx), particulate matter (PM), and nitrogen oxides (NOx), aligning with global decarbonization goals. When produced from renewable sources, methanol can achieve a carbon-neutral lifecycle, making it an attractive option for shipowners looking to mitigate carbon costs and enhance sustainability​.

However, the broader adoption of methanol as a marine fuel faces several challenges:

• Production Capacity: The current production of green and blue methanol is limited, with high costs and scalability issues hindering widespread adoption. Economic feasibility remains a key barrier to expanding production capacity, particularly for less carbon-intensive variants like green methanol.
• Energy Density: Methanol has a lower energy density compared to conventional marine fuels, requiring larger storage capacity onboard vessels. This can impact vessel design and operational efficiency.
• Regulatory Uncertainty: While methanol offers significant emissions reductions, future global regulations may necessitate a shift towards carbon-free fuels like ammonia, which could challenge methanol’s long-term viability as a dominant marine fuel​.

Despite these challenges, methanol’s potential as a transitional fuel remains strong, especially as the industry works to overcome production and scalability hurdles. Strategic investments in methanol production and infrastructure, along with the development of dual-fueled vessels, will be crucial to unlocking its full potential in the maritime sector.

Strategic Investments for a Sustainable Future

As the maritime industry stands at the crossroads of sustainability and regulatory compliance, strategic investments in low-carbon technologies and alternative fuels are essential. Investing in dual-fueled vessels and supporting the development of methanol production will not only help shipowners navigate the current regulatory landscape but also position them for success in a rapidly evolving market.

By staying ahead of regulatory changes and embracing innovative solutions, maritime companies can ensure their fleets remain competitive and compliant, while also contributing to the global effort to reduce greenhouse gas emissions. The journey towards a sustainable maritime future is complex, but with the right investments, the industry can sail confidently towards a greener horizon.

Stay ahead of the curve in maritime decarbonization. Download our comprehensive whitepaper to explore strategic investment opportunities and plan your path towards a sustainable future in maritime transport.

Watch: Barron’s Senior Energy Writer Laura Sanicola and OPIS Chief Oil Analyst Denton Cinquegrana discuss what’s ahead for oil this week.

Transcript:

SANICOLA: Hi, everyone, and happy New Year. This is Laura Sanicola, author of Barron’s Energy Insider, and I’m here today with Denton Cinquegrana, chief oil analyst at OPIS. Denton, thanks as always for joining, and I think we should just start the year talking about, oil prices. So, last time we had OPIS on, at the end of last year, we talked about the January effect where commodity funds start to reposition for the new year, and that causes oil volatility. How are we seeing that play out, and do we think it’s sustainable, heading into the year?

DENTON CINQUEGRANA: Yeah. Well, first of all, happy New Year, Laura. Great to see you again. Yeah. We we see this, at the beginning of the year every year. Commodity indexes rebalance. Sometimes they add positions. Sometimes they take away. They’ll be adding some in in Brent in particular.

But, usually, that that usually happens kind of in the second week. You know? So it’s still a couple days away, so you might see some coming into the market to kinda catch that and maybe front run it a little bit, if you will. But, really, over the last, say, almost ten years, the first four days of the trading year have provided some upside to oil, obviously, to varying degrees depending on the year. I don’t think that’s something you could depend on going forward because those large speculators that have chased oil in the past, they’ve moved on to other investment vehicles, say crypto, say big tech, stuff like that. So oil hasn’t been a place where you just go and park money and wait for the next event to happen and prices go up.

That being said, I don’t think that’s necessarily a sustainable thing. You know, we believe that the front three months, three and a half months is gonna be a front loaded year for oil prices, and then OPEC brings back some production. Demand tends to level off or or kinda rise for for the summer driving season and then levels off. So I think you’re gonna have a period where we’re gonna have a supply outstripping demand for oil. So while we have a we’re in a nice little upswing here. I’m not sure it’s sustainable.

SANICOLA: And, of course, all eyes are going to be on China’s economy, which was a main driver of oil prices. Last year, as the country attempts to rehabilitate some of its, different parts of its economy to drive and and potentially drive demand for oil, are there any early indicators we’re seeing on China’s economic recovery or any other indicators on oil usage? Obviously, this is a country that’s made dramatic moves into electric vehicles in the past couple of years.

CINQUEGRANA: Yeah. It’s probably still a little too early, but that being said, the stimulus being added into the economy can’t be discounted. It’ll help stoke demand. But, also, like you mentioned, there’s been a big push there for electric vehicles. So we definitely believe that gasoline demand peaks are in the rearview mirror, for lack of a better term, in China. So while there probably is still some oil demand growth going forward, it’s gonna be a lot smaller than what had been anticipated or what has been proven over the last several years.

SANICOLA: Alright. Thanks so much, Denton, and we’ll see everyone next week.

As the world gets closer to mid-century climate deadlines, carbon markets are stepping onto the global stage at an unprecedented scale. These programs are maturing from a series of fragmented projects into an interconnected ecosystem of policies that are guiding the world toward a low-carbon future. According to the World Bank’s State and Trends of Carbon Pricing 2024, there are now over 75 carbon pricing instruments in operation worldwide, covering approximately 24% of global GHG emissions, up from around 15% just five years ago. The total value of these initiatives exceeded USD $104 billion in 2024. Carbon pricing is a pillar of international climate policy, providing a powerful incentive for emission reductions and green technology investments in the private sector, while unlocking key funding for a diverse array of climate programs and initiatives.

Expansion of Industries and Regions

One of the most interesting developments over the last decade is how carbon markets have expanded across industries that were once considered challenging to decarbonize. While power generation and heavy industry have been core targets of Emissions Trading Systems, policy frameworks are extending to sectors like maritime, aviation, buildings, and road transport. The EU ETS, administered by the European Commission’s Directorate-General for Climate Action (DG CLIMA), is a great example of this evolution. The ETS was created in 2005 as the world’s first major carbon market and it originally focused on power and industrial emissions. Over time, the EU ETS has been strengthened and broadened. By January 2024, it included maritime transport and has actively explored ways to integrate emissions from road transport and buildings. This would be done through a separate but similar market system, ETS II. Throughout the year, EU allowance prices have traded above EUR 70 per ton. This rising price trajectory, compared to prices six years ago which were just breaking into double digit figures,  and ongoing policy refinements show that the EU’s approach is not only about emissions reductions for those under compliance, but also about driving innovation in cleaner fuels, efficiency measures, and emerging technologies.

In the Asia-Pacific (APAC) region, carbon markets are evolving very quickly, and there is an interesting interplay between rapid economic growth, climate commitments, and more investor interest in sustainable industries. China’s national ETS, which is overseen by the Ministry of Ecology and Environment, is now the world’s largest by volume, initially covering over five billion tons of CO2 from the power sector. This October, China expanded its coverage to include high-emitting industries like cement and steel, moving towards a more comprehensive system. Although Chinese carbon allowances have remained modestly priced at around CNY 103 per ton (USD 14-15), it is likely that prices will increase as caps tighten.

South Korea, guided by its Ministry of Environment, has built on its pioneering role as Asia’s first nationwide ETS. Prices in the Korean ETS, hovering around KRW 7,020 (USD 5.38) in July of 2024, showcases a well established market that has gained the trust of participants and covers 89% of South Korea’s national GHG emissions. Meanwhile, Southeast Asian countries such as Indonesia and Vietnam are piloting ETS phases, with Indonesia launching a carbon exchange in 2023 and Vietnam preparing a pilot program by 2025 to align with their Paris Agreement commitments. New Zealand’s ETS, managed by the Ministry for the Environment, stands as a model of stability in the region as well. Since its beginning in 2008, it has had rising prices  of NZD 50–60 (USD 30–35) per ton and comprehensive offset provisions that encourage both technological and nature-based solutions such as afforestation and reforestation to enhance carbon sequestration, as well as Carbon Capture and Storage initiatives.

In Latin America (LATAM), carbon markets are advancing as countries refine existing pricing instruments and explore new ones. Mexico, under the leadership of its Secretaría de Medio Ambiente y Recursos Naturales, completed its three-year ETS pilot phase in 2023 and entered a full compliance period in 2024. Although allowance prices remain relatively low, the focus for Mexico now is on strengthening emissions caps and creating a stable environment for future price increases and compliance as a whole. Key steps taken include enhancing transparency in allowance allocation and reporting processes, and improving monitoring, reporting, and verification frameworks to build trust among market participants. Chile, an early adopter of a carbon tax in 2014, is also exploring an ETS to complement it and drive deeper emissions reductions. Moreover, Colombia continues to allow offset use of carbon offsets to help meet its greenhouse gas reduction commitments, encouraging domestic forestry, agriculture, and other land use projects that deliver benefits like biodiversity conservation and support for rural livelihoods. It has made strides in developing its ETS since the passage of the National Climate Change Law in 2018, including integrating offsets and designing emissions caps, with a pilot phase from 2019 to 2020. However, full implementation is still underway as the country refines its framework to align with climate goals.

LATAM also plays a significant role in the global voluntary carbon market, particularly through the supply of high quality nature-based credits such as those generated from REDD+ initiatives. These credits not only help businesses meet voluntary sustainability targets but also bring finance into ecosystem restoration and community development. As policymakers explore integrating nature-based solutions into compliance regimes, which is encouraged by emerging frameworks under Article 6 of the Paris Agreement, LATAM’s leadership in this arena could position it as a vital source of credible reductions and removals. Brazil’s new ETS, known as the Sistema Brasileiro de Comércio de Emissões (SBCE), was approved under Law N 15.042 on December 12th, 2024, and has been a major evolution in the country’s climate policy. The SBCE pledges to target companies emitting over 10,000 metric tons of CO2 annually, requiring them to report GHG emissions. Those exceeding 25,000 metric tons must adhere to emissions caps or obtain eligible credits. What sets the SBCE apart here is its integration of nature based solutions such as REDD+ forest conservation, which creatively blends voluntary and regulated markets.

The Middle East (MENA) presents a more cautious approach to carbon markets. Long reliant on hydrocarbons, countries like the UAE and Saudi Arabia are recognizing the potential of carbon pricing as part of their economic diversification. With guidance from environment ministries and sovereign wealth funds such as the Saudi Public Investment Fund, these nations have hosted voluntary credit auctions since 2023 and have drawn immense international interest achieving auction prices around USD 20–25 per ton. In 2023, the Regional Voluntary Carbon Market Company announced the successful auction of more than 2.2 million metric tons of carbon credits at the largest ever voluntary carbon credit auction. Although still nascent, these developments show a growing readiness to integrate carbon markets into broader strategies aimed at sustainable development and placing MENA on the scene as an environmental player. Hosting global climate summits like the UAE’s COP28 intensifies the region’s spotlight even further.

Predictions for Future Growth

Looking ahead, several key trends are likely to define carbon markets and how they evolve through the remainder of the decade and beyond. One major development will be the increased linkage of ETSs and cross-border collaboration. The existing connection between the EU and Switzerland’s ETSs demonstrates the benefits of linking, such as enhanced liquidity and shared practices. The United Kingdom is evaluating potential linkages of its post-Brexit UK ETS with other systems such as the EU ETS in order to improve market stability. Colombia, Chile, Mexico, and Brazil are advancing carbon pricing mechanisms, and through this are creating the potential for regional market linkages in LATAM. This type of integration could enhance market liquidity and reduce compliance costs, however challenges like regulatory alignment and political coordination need to be addressed in this region to realize these linkages. Discussions in the APAC region could eventually pave the way for interconnected carbon markets, enabling countries to exchange credits that meet uniform standards in the same region. As Article 6 mechanisms under the Paris Agreement progress, Internationally Transferred Mitigation Outcomes may facilitate a truly global trading system, ensuring reductions happen wherever they are most cost-effective and environmentally sound.

Another area of opportunity is the integration of emerging technologies and nature-based solutions. Many markets are exploring ways to include carbon removal options such as Direct Air Capture and innovative agricultural practices into compliance frameworks. As Measurement, Reporting, and Verification protocols grow more stringent and as confidence in the environmental integrity of offsets strengthens, carbon markets may reward a breadth of innovative mitigation strategies. This could encourage investors to increasingly diversify their low-carbon portfolios and support the research and commercialization of new climate solutions. With sectoral initiatives like the International Civil Aviation Organization’s CORSIA scheme for aviation and growing interest in maritime decarbonization, carbon pricing will increasingly shape industries once viewed as difficult to regulate, and incentivize them towards cleaner fuels and long-term innovation.

A Global Carbon Market

From the world standard EU ETS to China’s evolving national system, and LATAM’s nature-based credits to the MENA’s emerging voluntary platforms, carbon markets are much more than isolated policy ventures. They are integral pieces of international climate architecture and provide a venue to foster cross-border collaboration in efforts to reduce global carbon emissions. As carbon market systems spread across multitudes of sectors and regions, we are coming closer to a cohesive global carbon marketplace. The optimism and increased participation surrounding carbon markets in 2024 is truly a testament to this. Through forging stronger connections,  integrating natural and technological solutions, and by committing to continuous changes, carbon markets are poised to become even more transformative tools on the international journey to net-zero emissions. Their importance lies not only in their ability to reduce emissions but also in addressing the global nature of climate change, which is an issue that knows no borders.

As the maritime industry faces increasing pressure to reduce its carbon footprint, the search for sustainable and viable alternative fuels has become a priority. Among the emerging options, methanol stands out as a promising low-carbon fuel that can significantly contribute to the decarbonization of maritime transport. Read on for an exploration of the role of methanol as a sustainable marine fuel, highlighting its environmental benefits, the types and challenges associated with its use, and its potential to meet the industry’s evolving regulatory demands.

Methanol as a Low-Carbon Alternative

Methanol, a simple alcohol primarily produced from natural gas and coal, is gaining attention in the maritime industry as a low-carbon alternative to traditional marine fuels. Unlike other fuels, methanol can be stored as a liquid at ambient temperature, making it easier to handle and integrate into existing infrastructure. Its ability to reduce greenhouse gas emissions, particularly when produced from renewable sources, positions methanol as a key player in the future of sustainable maritime transport.

Environmental Benefits: A Cleaner Alternative

Methanol offers several environmental and strategic benefits, making it an attractive option for shipping companies aiming to reduce their carbon footprint:

• Reduction in Emissions: Methanol combustion results in significant reductions in sulfur oxides (SOx) and particulate matter (PM) emissions by over 95%, as well as nitrogen oxides (NOx) emissions by up to 80% compared to conventional marine fuels. This makes methanol a cleaner alternative that aligns with global efforts to minimize air pollution from shipping activities.
• Carbon-Neutral Potential: When produced from renewable sources such as biomass or renewable electricity, methanol can achieve a carbon-neutral lifecycle. This aligns with the International Maritime Organization’s (IMO) decarbonization goals, offering shipping companies a strategic way to meet increasingly stringent environmental regulations.
• Infrastructure Compatibility: Methanol’s liquid state at ambient conditions allows it to be seamlessly integrated into existing bunkering and storage infrastructure with minimal retrofitting costs, unlike other alternative fuels such as liquefied natural gas (LNG). This compatibility reduces the barriers to adoption and facilitates a smoother transition to cleaner fuel options.

Types and Challenges: Understanding Methanol Variants

Methanol comes in several forms, each with different environmental impacts and production processes:

• Grey Methanol: Predominantly produced using a Steam Methane Reformer (SMR) from natural gas, grey methanol is the most common form but carries a higher carbon footprint due to its reliance on fossil fuels.
• Advanced Grey Methanol: Utilizing an Autothermal Reformer (ATR) to convert natural gas, advanced grey methanol reduces fuel consumption and emissions compared to traditional grey methanol.
• Blue Methanol: Produced using an ATR, blue methanol involves converting syngas to hydrogen and CO2, with the CO2 being sequestered to achieve near-zero carbon emissions.
• Green Methanol (e-Methanol): The most environmentally friendly option, green methanol is produced from captured CO2 and hydrogen via electrolysis powered by renewable energy. However, its production is currently limited by high costs and scalability challenges.

Challenges: Despite its advantages, methanol faces several challenges in becoming a mainstream marine fuel:

• Lower Energy Density: Methanol’s energy density is about half that of conventional marine fuels, meaning ships require more storage capacity to achieve the same range, which can affect vessel design and operational efficiency.
• Lifecycle Emissions: While methanol can reduce direct emissions, its overall lifecycle emissions can be comparable to liquefied natural gas (LNG) unless produced through less carbon-intensive processes. This raises questions about its long-term sustainability unless cleaner production methods are scaled.
• Regulatory Compliance: Methanol provides about 10% carbon savings compared to conventional fuels, which may not meet future emission limits as regulations become more stringent. Competing fuels like ammonia, which offer carbon-free combustion, might be more attractive as regulations tighten.

Methanol’s Viable Path Forward

Methanol presents a viable path forward for the maritime industry to reduce emissions and comply with regulatory demands. Its ability to significantly lower harmful emissions, coupled with its compatibility with existing infrastructure, makes it an appealing option for shipping companies. However, the industry must address the challenges of energy density and lifecycle emissions to maximize methanol’s potential as a sustainable marine fuel.

As the maritime sector continues to evolve, strategic investments in dual-fueled vessels and low-carbon methanol production will be crucial. These efforts will not only support the industry’s transition to cleaner fuels but also position it to meet the ambitious global emissions targets on the horizon.

Curious about how methanol and other alternative fuels can shape the future of maritime transport? Explore the potential of methanol and gain deeper insights into sustainable fuel options by downloading our comprehensive whitepaper. Equip your business with the knowledge to navigate the shift towards a greener maritime industry.

Nature conservation often attracts people willing to endure physical privations for long stretches of time. In the case of two former British soldiers turned nature project developers, their challenges have also included Russian snipers, unexploded ordinance and minus 20 degree temperatures.

Angus Aitken and Jody Bragger, the co-founders of U.K.-based Tellus Conservation, have been operating in and out of Ukraine, often close to the front line of the war, since the beginning of Russia’s invasion in 2022.

Their work raising millions of dollars to conserve Ukraine’s forests and put out fires from Russian missiles has largely flown under the radar, but the pair are now aiming to raise far more money for the country through nature conservation projects that would stack carbon and biodiversity credits.

Bragger has had a long affinity for the country since travelling there in 2004 as a student journalist, and within a few weeks of Russia’s invasion, the Tellus co-founders were in Ukraine.

“Like many people, we were very keen on doing something to support Ukraine after the illegal Russian invasion,” says the 38-year-old Bragger, who in his earlier life as a soldier in the 1st Battalion Coldstream Guards served in Afghanistan, Somalia and the West Bank.

“We realized that with a company like Tellus, we were in a unique position to be able to do something for a part of Ukrainian society that was probably being slightly overlooked,” Bragger told OPIS in a joint interview with Aitken. “Shortly after the invasion, we sent a message to the outgoing deputy minister of the environment and asked for her opinion on what was going on.”

“Overnight their extensive national park network, which contains a third of Europe’s biodiversity, lost funding,” says Bragger, referring to the UN Convention on Biological Diversity (CBD) statistic that Ukraine has 35% of Europe’s biodiversity despite occupying less than 6% of the continent. Its wetlands also cover 4.5 million hectares, according to the CBD.

Ukraine has more than 80 parks and nature reserves, and Bragger believes its “beautiful wetlands, bear, wolf, lynx, bison” will provide the country with vital tourist revenues when the war is over.

But the immediate start of the war had devastating consequences for some of the country’s forests, and the Ukrainian government estimates that 3 million hectares of forests have been destroyed since 2021. A total of 139,000 square kilometres — twice the size of Azerbaijan — have been contaminated by explosives, it said in a news release published during COP29 to mark a thousand days of war.

Those areas dwarf the size of the land that the Ukrainian government has subsequently attempted to restore to nature and decontaminate.

Parks’ Loss of Employees and Equipment

Ukraine’s park network also lost a large number of its employees overnight, as many of its rangers had operational firearms experience and were some of the first to be conscripted, while their vehicles were also redeployed.

Ukraine’s economic output slumped by almost 30% in the wake of the invasion, while its military spending zoomed higher.

“We worked closely with a Ukrainian NGO [and] spent two weeks driving around nine of the national parks we now support,” said Bragger. “We included them in our funding portfolio because they contain the three major Ukrainian biodomes,” he says, referring to its famous wetlands, forests and grasslands, also known as steppe.

With the help of a “healthy donation” from a U.K.-based family office, Bragger says that Tellus was able to step in and provide crisis funding initially for nine parks, before a tenth was added later. Civil servants in the environment department were still being paid, so when Tellus raised $1.1 million in funding, the money went straight to the frontline of nature conservation, the co-founders say.

The money was channeled through the Nature Fund of Ukraine, which the two set up with the Frankfurt Zoological Society. Aitken is on the board, while Bragger is its chairman.

The first tranche of money funded “urgent ecological work such as removing invasive species from the steppe”, says Aitken, who is 33 years old. This required buying equipment such as brush-cutters, trimmers and chainsaws.

The money also covered operational support for a range of tasks: generators were required because of missile strikes on local power stations; fuel and vehicles were needed; and “some park staff were operating out of buildings where the roof is completely collapsed in, either just from old age or from damage sustained during the war,” says Aitken.

Aitken, a former Gurkha soldier in the British Army who served in Brunei, Malawi and Uganda, says he is particularly proud of Tellus’s role in boosting the skills of younger park rangers, helping them use the Spatial Monitoring and Reporting Tool (SMART). The platform enables ecologists to map data from surveys of species and their habitats.

“It’s good for conservation and it’s aligning these Ukrainian national parks with the standard across the EU. We’re aligning what conservation looks like in Ukraine with what it looks like in the rest of Europe,” he tells OPIS. “It’s nice to see the next generation of nature conservationists, the younger members of the park staff using this tech.”

From Soldiers to Project Developers

Those who know the pair suggest their experiences as soldiers dovetail with their new lives as project developers.

“Their military backgrounds mean they have the deep understanding of the challenges associated with delivering complex projects at scale. They have the logistical wherewithal to deliver effective conservation,” says an employee at a prominent project developer who has known them for years.

“In the British military, particularly the unit I was in, the Gurkhas, you are always working across cultures, and I think that is crucial when it comes to developing these projects,” says Aitken.

The life of the soldier led to the life of a project developer, says Bragger: “The influence of my time in the military is what brought me to conservation.”

Threats to security are often closely linked to environmental problems, he suggests: “I saw firsthand how the drought in Somalia was used as a recruiting tool for [al-Qaeda affiliate] Al-Shabaab. Agricultural collapse and no income — it was very easy for [parts of the populace] to become radicalised.

“Environmental crises and security will become closely intertwined…The environmental changes that we are going through, whether it’s climate change or biodiversity loss is going to contribute to a less secure world. You’ve already seen this play out in the Sahel,” Bragger says.

Referring to Ukraine and Tellus’s other reforestation projects in countries like the Democratic Republic of Congo, he adds: “We can’t come to terms with biodiversity loss if we don’t work in these countries.”

Bragger and Aitken downplay the risks they have encountered in Ukraine during interviews before and during COP16, the recent biannual United Nations biodiversity summit held in Cali, Colombia. The Tellus co-founders are scrupulous to a fault in pointing out that whatever hardships or near misses they have experienced are not on the scale of those encountered by Ukraine’s people since 2022.

Asked about close calls, Bragger prefaces his remarks by saying: “In terms of near misses, I’m consciously aware that Ukrainians live with this every day.”

Six of the ten national parks funded by Tellus are away from the frontlines of the conflict. But it is clear that there is significant physical danger for Bragger, Aitken, Tellus’s staff and the Ukrainian park staff operating in the parks closer to the frontline.

During their spells in Ukraine, the Tellus founders have either stayed in or transited through Kiev, Kharkiv, Dnipro and other areas heavily bombarded with missiles.

They stayed in Ukraine over the most recent winter, and “access to power and running water was intermittent during the cold winter nights…Temperatures plunged down to minus 20 degrees,” says Bragger.

Kamianska Sich, one of the parks supported by Tellus, backed on to the Kakhovka Dam, which was destroyed in June 2023. “There was really heavy fighting going on in the national park,” according to Bragger. “We had outgoing and incoming artillery when we were there,” necessitating the use of body armor and helmets. “These are the conditions the Ukrainian park staff are working in every single day,” he adds.

“We were also tracked unfortunately by a small Russian drone…I don’t know why they were tracking us, but they snipered our building earlier that day when we got there,” says Bragger, matter-of-factly. “That’s the proximity, within sniper range, that some of the park staff are operating in. That is the lived experience of many Ukrainians on the frontline.”

There has also been online harassment. “I’ve had some pretty aggressive messaging on social media from what must be like a kind of St Petersburg bot farm,” says Bragger, an ultra-marathon runner who has recently recovered from cancer.

The equipment they have purchased has had a profound impact on protecting nature on the frontline.

“The day I left [Ukraine this summer], I got a report coming in saying that 1,500 hectares of one of our parks was on fire,” says Aitken. Missiles had torched a part of the forest, setting off fires, but the firefighting equipment brought to the park by Tellus put them out. Seeing videos of the equipment being used to stop the fires was a “really humbling thing”, he adds.

Tellus started working with a tenth park, Sviati Hori, or the Holy Mountains Park, more recently. “It’s really in the hot zone [and was] struggling with how much they were getting hit by the Russians…It forms the front line with Russia,” says Aitken. “It has had troops go back and forward over it. The Russians know that the foliage of the forests in provides some cover for Ukrainian troops and anyone moving around, and so they are really trying to burn down the forests.”

The largest wildfire in the park’s history ripped through it this September and was the result of an air strike that hit unexploded ordinance and land mines. Reuters recently reported that 14 forest rangers in the park have been killed by shelling, while Radio Free Europe quoted a state forestry official suggesting that returning the park to its pre-war condition will take between 50 and 70 years.

The biodiversity across the 406 sq km park has suffered with the people who live in and around the forest and its chalk mountains. The park is home to rare plant species, foxes, wolves, ten types of reptiles and bubo bubo eagle owls in addition to dwellings, some of which have been destroyed, and the damaged Sviatohirsky cave monastery.

“Nowhere’s really safe, particularly Sviati Hori,” says Aitken. “There are strikes on the main towns around there.”

Staff Face Power Cuts, Exhaustion and Danger

Both Tellus founders hail the resilience of their Ukrainian employees and the park rangers, who must deal with freezing winters and hot summers often without power, while family and friends serve on the front line.

“Yes, there is all this conservation work going on, and yes everyone is hard, resilient and adaptable, but I cross over and I get back into Poland and I start sleeping well for the first time in two months….I’m in NATO,” says Aitken. “They don’t get that, they just have to keep going.”

They have worked closely with two full-time Ukrainian employees, project coordinator Nastia Drapaliuk and project lead Nataliia Bohdan, who talked to OPIS during an hour-long interview at a time when the bombing of Ukrainian electricity infrastructure meant that power supplies to households were rationed to just three hours per day.

“They are the engine, heart and soul of this entire project,” says Aitken. “We could not have found two better people to do this with. Nastia has been working in this space for twenty-plus years. She has always wanted to found a nature fund of Ukraine.”

With the help of Tellus, Drapaliuk has achieved that ambition after previously working as head of department at the Ministry of Natural Protection and Natural Resources of Ukraine for almost nineteen years.

“I have a shorter working history!” said Bohdan, who previously worked for deputies in Ukraine’s parliament, where she specialized in nature policy, and lectured at the Donetsk National University. Bohdan is from the city of Denotsk, which is currently occupied by Russian forces.

Bohdan is part of “the next generation of conservation experts,” says Aitken and “is just charging around the country, often taking her three-year-old daughter with her to negotiate with contractors and suppliers to make sure that the building works are happening in the right way.”

“Nataliia is always getting discounts!” says Drapaliuk, referring to how Bohdan has negotiated with firms, including a large steel company, to obtain required materials.

Both Ukrainians manage to maintain wry, jolly demeanors, despite everything happening to their homeland and its natural world.

Drapaliuk almost chuckles when trying to make light of the many challenges caused by the war. “We see them from time to time,” she says with respect to Russian drones. “I live near a power station…and it’s one of the last that the Russians didn’t destroy! It’s less than 1 kilometer away. It’s dangerous and not comfortable. When you live a long time in a stressed system…it becomes part of usual life. It’s a challenge.”

A lot of employees working to protect the parks say that their work is keeping them going and keeping their spirits intact, Drapaliuk and Bohdan relay.

Drapaliuk chose the parks Tellus helps to conserve on the basis that they contained high levels of biodiversity but were receiving less attention. The war resulted in tourist revenues drying up, 18% of forests being either destroyed or mined, and many park rangers left or were conscripted, she confirms. But Drapaliuk is far from nostalgic for the pre-war situation.

“It was bad,” she says. Although there are initiatives to change agricultural practices in Ukraine, as in many countries, it still needs to change to improve biodiversity, believes Drapaliuk.

Moreover, Drapaliuk adds, “since 2010 [there were] not enough people” for protected areas, of which there are 9,000, as well as the national parks. Employees “could not survive [easily] on those salaries,” she says with respect to the salaries of park workers in the two years before the war.

Conservation experts with PhDs were receiving little more than $150 per month, she says. There is a “big list of needs” now and in the future for Ukraine’s nature, Bohdan adds.

Tellus Eye Carbon and Biodiversity Credit Projects

Bragger believes that the sheer weight of those needs and the reconstruction tasks that will confront a post-war Ukrainian government will mean that the private sector will be required to help nature restoration.

“We set up the Nature Fund of Ukraine to ensure that there is a long-term sustainable financial mechanism for Ukraine’s national parks. Why? Because we don’t see the government being able to support these parks for the foreseeable future,” he said in an interview with OPIS. “The sad fact is that national parks are probably quite low down the list of things that are going to be allocated funding. Therefore, it’s on organizations like Tellus and our partners in Ukraine to look at ways of using the private sector.”

Both believe that nature restoration projects that stack carbon and biodiversity credits could be one of the answers to that conundrum.

“Ukraine has already shown that it doesn’t need a lot of money to support its park network. It is inherently a thrifty country,” argues Bragger, who would like to pioneer biodiversity credits in the country: “If companies are looking to enter the nature credit market, then what better market to associate themselves with? Not only will this help a country containing a third of Europe’s biodiversity, ancient forests and the steppe, but also provide a sustainable income for a country that is defending the freedoms and rights of 450 million Europeans.”

“We started with this crisis funding package [because] we wanted to do something in their darkest hour,” says Aitken about the initial focus of their Nature Fund of Ukraine. “But we’ve always thought …market-based instruments…would be a really great thing for Ukraine.

“We are in active talks with the government about developing nature-based carbon projects,” Aitken reveals. “In all our projects there is a very strong biodiversity element. We plan to stack biodiversity credits on to carbon credit projects…There has been a lot of degradation to the land from farming practices but also from the war as well. We’ve got big plans for Ukraine.”

Indeed, the country’s officials want nature-related help from the outside sources whenever the war ends. “We hope that a lot of masters students will go to Ukraine to enrol and do their master’s thesis and PhD students will [come],” Ukrainian environmental negotiator Oleksii Riabchyn told OPIS at COP28 in Dubai last year. “We have plenty of opportunities, and we will need the best brains in the world with the best energy.”

The country is still managing to attract investment partnerships with other countries and environment-related international private sector investment during the war, Svitlana Grinchuk, Ukraine’s minister of environment and natural resources told OPIS during COP29.

“We don’t need to wait until the war is done,” she said. Grinchuk pointed out that the country had completed construction of a wind farm “just 100 km from the frontline” during the war. “We really have a lot of opportunities” for international investment in the energy and environmental sectors, she added.

Catching Attention from Companies, Investors, Institutions

Both co-founders evince a rising confidence in their project management abilities — “we are really now hitting our stride in terms of operational outputs,” says Aitken about their conservation work in Ukraine — at the same time as they are attracting attention from investors.

Based on conversations at COP16 in Cali and the UN climate summit, COP29 in Baku, it is clear that some of the world’s largest companies and financial institutions are impressed by the pair, who both studied at the University of Oxford.

Tellus Conservation was included by the Symbiosis Coalition amongst its first cohort of potential project developers. Symbiosis, which represents Microsoft, Google, Meta and Salesforce, is looking to bolster the voluntary carbon market and drive up standards by buying carbon offset projects that meet its criteria.

The coalition’s starting guide price, multiple sources say, is $50 per credit — far beyond prevailing market prices, such as the OPIS-assessed REDD+ V24 price of $11.625 on November 27 or the average OPIS-assessed V24 Afforestation, Reforestation and Revegetation (ARR) price of $24.885 on the same day.

“We’re very honored,” Aitken told OPIS in an interview in Cali with respect to Symbiosis’s interest in his company, which also aims to reforest the 3,500 sq km Bombo Lumene park in the Democratic Republic of Congo.

The Tellus founders went to New York Climate Week, Cali and Baku, and Baku, becoming more visible in the process.

“We have traditionally eschewed conferences,” Aitken says. “I think we’ve decided that now is the time to get out and show ourselves more…We’ve done a lot of the hard yards to really work out what our offering is and where we fit in…We know that we have a model that we can replicate elsewhere.”

They plan to expand beyond their existing project portfolio of projects, says Aitken, but they are committed to Ukraine.

“Jody has had a long love affair with the country,” he says, referring to how Bragger kept coming back to Ukraine after being a student journalist reporting on the Orange Revolution’s student leaders in 2004. “And I actually realised this summer that I had fallen in love with it.

“You often read in books how someone moves somewhere and thinks ‘I’ve arrived, this is home’. And I’ve never felt that before until now. I’ve begun to learn the language. And I hope that I have engagement with Ukraine for the next 50 years of my life. I absolutely love it.”

Watch: Barron’s Senior Energy Writer Laura Sanicola and OPIS Chief Oil Analyst Denton Cinquegrana discuss what’s ahead for oil this week.

Transcript:

LAURA SANICOLA: Hi. I’m Laura Sanicola, author of Barron’s Energy Insider newsletter. And joining me this week is my colleague, Denton Cinquegrana, chief oil analyst at OPIS. Denton, thanks as always for talking with me.

DENTON CINQUEGRANA: No problem. Good to see you, Laura.

SANICOLA: Yeah. So let’s talk OPEC. I mean, oil companies really can’t catch a break here. OPEC plus was supposed to start ramping up production in October, then delayed to December, and now they are pushing out, unwinding those voluntary cuts back to the start of April of next year. How bearish is this for oil?

CINQUEGRANA: Yeah. Well, like you mentioned, the previous meetings is like, okay, we’ll delay this one month. We’ll delay this one month. Now we’re going for a full quarter here. The market treated it bearish. Probably, the prices dipped a little bit, not too much from here. But, again, this is also the time of year when oil tends to bottom out. We usually see a fourth quarter low, usually in early to mid-December, and then we rally usually into the first and second quarter. So I think OPEC is probably trying to time that rally a little bit as well. It’s also an acknowledgment by them that maybe demand isn’t as good as they thought it might be by this time.

SANICOLA: Yeah. At Barron’s, we’ve been looking for any upside for oil producers or refiners here this week in the newsletter. We’re honing in on Exxon since they have their investor day this week. This is a company that’s adding refining capacity in chemicals and specialty products over the next couple of years even in this weak environment. But they say it should, be able to turn a healthy profit during mid-commodity cycle. So I I guess that’s my question for you. Are we at mid cycle? Are we near it? What do you think of Exxon’s strategy here?

CINQUEGRANA: Yeah. I think we’re pretty close to mid-cycle, maybe a little bit below. If you look at the NYMEX gasoline crack spread, for example, so far in December, it’s been averaging about thirteen dollars a barrel. That’s very similar to December of last year. So we’re kind of, I think, right about there. Diesel, whole another story. Last year at this time, we’re looking at forty dollar cracks. Now it’s, you know, 23, 24, 25 dollars a barrel.

But as far as Exxon’s concerned with the specialty products, the good thing about those is, yeah, they’re low volume, but they’re very, very high margin. So if you’re selling those specialty products, you’re probably doing well with profitability. But as far as, you know, the key marquee products — gasoline, diesel, jet fuel — it’s hard to see much upside for refiners right now. I guess the real upside is that in 2025, you do have three refineries closing, two in the United States and one in the UK. Obviously, that that eliminates some, you know, quote, unquote competition. But right now, you know, here in in early December, ahead of the holidays, it just doesn’t look all that great for for refiners right now.

SANICOLA: Alright. Thanks so much, Denton, and we’ll see you all next week.

CINQUEGRANA: Anytime. Sounds good.

The Regional Greenhouse Gas Initiative (RGGI) is a cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania (currently barred from active participation in the program due to ongoing litigation), Rhode Island, and Vermont to cap and reduce power sector CO2 emissions. With its initial auction held in September 2008, RGGI became the first market-based, mandatory cap-and-trade regional initiative in the United States.

Heading into 2025, key policy and programmatic developments continue to unfold involving RGGI. Ongoing litigation remains a barrier for Virginia and Pennsylvania to participate in the program. Meanwhile, RGGI’s Third Program Review could lead to important design changes and updates to the Model Rule, which acts as a template for each state to shape its own CO2 budget trading program.

Door Cracked Open for Virginia to Rejoin RGGI

Virginia’s participation in RGGI started in 2020 when the Virginia General Assembly passed the Clean Energy and Community Flood Preparedness Act, which allowed full participation. Virginia had been active in five RGGI auctions from 2021 until December 2023.

Efforts to withdraw Virginia from RGGI started in 2022 when Governor Glenn Youngkin (R) issued Executive Order 9. This order directed the Virginia Department of Environmental Quality (DEQ) to reevaluate the impact of participation in RGGI. In response, DEQ sent the report titled Virginia Carbon Trading Rule and Regional Greenhouse Gas Initiative Participation – Costs and Benefits on March 11, 2022, which provided the following conclusions:

• “Because of the captive nature of their ratepayers, the ability for power-generators to fully pass on costs to consumers, and the fact that the Code of Virginia dedicates RGGI proceeds to grants programs, participation in RGGI is, in effect, a direct carbon tax on all households and businesses.
• RGGI fails to achieve its goal as a carbon ’ system because it lacks any incentive for power generators to actually reduce carbon-intensive gas emissions.
• Carbon emissions rates have been reduced in Virginia by over 50% in the past 10 years, prior to the Commonwealth’s participation in RGGI.”

Following this report, the Virginia Air Pollution Control Board came to a decision to repeal Virginia’s participation in RGGI in a 4-3 vote in June 2023. Of the Board’s seven members, Youngkin had appointed four. This decision was challenged two months later in the Fairfax Circuit Court by the Southern Environmental Law Center which filed a petition on behalf of four clients: the Association of Energy Conservation Professionals (AECP), Virginia Interfaith Power and Light, Appalachian Voices, and Faith Alliance for Climate Solutions. In November 2023, the Fairfax Circuit Court dismissed three clients and transferred the case to Floyd County, where AECP is headquartered.

Most recently on November 18, 2024, the Floyd County Circuit Court ruled that the action by Governor Youngkin’s Administration to withdraw Virginia from RGGI was “unlawful and without effect.” In its ruling the court found that the “Petitioner does in fact have standing to bring this suit, and, the putative repeal of the RGGI Regulation was beyond the statutory authority of the Respondents, and therefore unlawful and without effect.”

Rejoining RGGI would require an order that officially repeals the regulation that withdrew Virginia from RGGI and reinstate the previous regulation which required participation. The state’s DEQ would then need to initiate action to resume participation. Notably, Youngkin has implied his intention to appeal the decision in response to the court ruling.

While it is unlikely that Virginia will begin participation during the remainder of Youngkin’s current term, efforts to do so could be expedited under a democratic administration resulting from the upcoming 2025 gubernatorial election on November 4. It is important to note that Youngkin will be ineligible to run for re-election as the Constitution of Virginia prohibits the state’s governors from serving consecutive.

Pennsylvania’s RGGI Participation in Limbo

In 2019, Governor Tom Wolf (D) initiated Pennsylvania’s participation in RGGI through Executive Order 2019-07. This action was followed by the Pennsylvania Department of Environmental Protection’s (DEP) Environmental Quality Board publishing regulation which set the state’s participation to begin on July 1, 2022.

In response to the Administration’s regulation, the Commonwealth Court of Pennsylvania issued two   enjoining the Pennsylvania DEP from implementation—completely halting the state’s participation in RGGI. As a result, RGGI Inc. issued an amended auction notice in August 2022 which stated that Pennsylvania would be removing all its allowances offered for sale in the CO2 Allowance Auction 57 held on September 7, 2022, as every state contributes a designated share of allowances for sale in each auction. Pennsylvania has yet to participate in any RGGI auctions due to this ongoing litigation.

More recently, on November 1, 2023, the Commonwealth Court of Pennsylvania ruled that RGGI participation violates the state constitution. The court concluded that the regulation did not create a “fee” but rather a “tax” within the exclusive authority of the Pennsylvania General Assembly. On November 21, 2023, the Administration of Governor Josh Shapiro (D) appealed this decision to the Pennsylvania Supreme Court. The Court is now considering written arguments but has not yet posted a schedule for oral arguments.

The Pennsylvania Senate has also been recently active in regard to the state’s participation in RGGI. On September 17, 2024, the Republican-controlled Senate approved Senate Bill 1058, which repeals Pennsylvania’s participation in RGGI. However, the bill did not move in the House of Representatives, where Democrats hold the majority. As a result of the election in November, the Pennsylvania General Assembly will continue to be divided, with Republicans maintaining control of the Senate and Democrats in the House. It is possible that another bill to repeal RGGI participation could be reintroduced in future legislative sessions.

As an alternative to RGGI, Governor Josh Shapiro proposed in March 2024 the Pennsylvania Climate Emissions Reduction Act (PACER) to establish a Pennsylvania-specific cap-and-invest program that allows Pennsylvania to determine its own cap on carbon and invest directly. The latest action reported on PACER is the recommendation of House Bill 2275 and Senate Bill 1191, to the Pennsylvania House Consumer Protection, Technology and Utilities Committee, and the Senate’s Environmental Resources and Energy Committee, respectively. PACER could be revisited in future legislative sessions.

The Way Forward: RGGI Program Review Underway

The RGGI states are currently conducting a Program Review to examine the results and design of their CO2 budget trading programs, and to consider updates to the Model Rule and their individual state programs. The RGGI states completed the First Program Review in February 2013 and completed the Second Program Review in December 2017, resulting in the 2017 Model Rule.

In September 2021, the RGGI states initiated a Third Program Review to consider further updates to their programs. To support the Third Program Review, the states aim to conduct technical analysis and consider key design elements.

In September 2024, RGGI released a Program Review Update and asked for public comments through October 23, 2024. Of the many responses, some of the key entities that submitted comments include: International Emissions Trading Association, Constellation, Environmental Defense Fund, RGGI Associates Coalition. Suggestions found within these comments include increasing RGGI’s Emissions Containment Reserve (ECR) and the Cost Containment Reserve (CCR); setting an interim target for 2030 in addition to the current zero-by-2040 trajectory; and implementation of the program review rules as soon as possible.

According to RGGI’s Program Review Update, member states are expected to release an updated Model Rule sometime in the fall/winter of 2024-25, followed by public meetings to review. States may release further Model Rule updates into Spring 2025.

Meanwhile, RGGI’s Allowance Auction 66 will be held on December 4. Volatility in the program’s membership roster appears to be reflected in allowance auction settlement prices in 2024, which have ranged from $16.00/short ton (st) in the first quarter auction to over $25.00/st in the third quarter auction, as stakeholders digest each development in both Virginia and Pennsylvania’s statuses within the program, and the progress of the latest program review.

Results for the final RGGI allowance auction of 2024 will be posted on December 6.