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NER300 allowances land in EIB carbon registry account

02 Dec 2011 17:43:18 | edcm

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The European Investment Bank (EIB) took delivery of 300m emissions allowances from the phase III new entrants reserve (NER), it said on Friday. The start of the so-called NER300 sale is could have a bearish impact to already weak prices within the EU emission trading system (EU ETS), although some of this could already be factored in to prices.

The bank also confirmed that it might not sell the full 300m by the earlier deadline of end of 2012.

The bank has previously stated that it aims to start selling the allowances within one month of taking delivery, which means that the first batch of allowances will hit the market at the latest in early January 2012.

Previously, the EIB had indicated that it would sell the allowances before the end of November ( see EDCM 17 November ), implying this would happen ahead of the expiry of the bellweather EUA Year 2011 on the first working day of December. The late delivery of the allowances made this impossible.

EIB has said it will start selling the NER300 before the end of 2011. It will not give any advance notice of the exact timing or details of these over-the-counter transactions.

The European Commission delivered the 300m allowances to the EIB on Friday, following the adoption of the new registry rules last month ( see EDCM 21 November 2011 ).

Tranche timings

The monetisation of the first tranche of 200m needs to be completed within 10 months from delivery, implying an indicative sales volume of 20m allowances per month until October 2 2012.

The decision on the second tranche of 100m allowances will be based on a review of the first 200m allowances. Therefore, sales of the second tranche may not continue immediately after the first is finalised and may not be completed until December 2013.

This is later than the non-binding deadline, set by the European Commission last year, for the sales to be concluded before phase III starts in January that year.

This confirms earlier reports from sources close to the Commission, saying that sales were likely to continue into phase III.

The EIB will sell 300m EUAs in tranches of 200m and 100m and has selected energy exchanges EEX and ICE Futures Europe as the sales venues.

Market implications

The prospect of additional EUAs may to have a bearish effect on prices with the carbon market, which is already struggling with oversupply and concerns regarding the stability of the eurozone. However, traders polled by ICIS Heren on Friday suggested that this may already have been priced in.

Some sources said they expected the EIB to ration sales in view of the low market prices. The fact that the bank will now miss the original phase III deadline to conclude the sales could support this argument.

The sales are meant to raise money for carbon capture, storage and renewable projects, and the carbon price crash means the potential funding is dwindling.

At current prices, selling 300m EUAs would raise just €2.5bn. This is sharply down from the €9.0bn it would have raked in when the NER300 scheme was designed in 2008.

The EUA December '11 closed at €8.40/tonne of carbon dioxide equivalent (tCO2e) on Thursday, the day before the arrival was announced.

The benchmark's average closing price for November stood at €9.25/CO2e, lower than the average closing price in October, which had stood at €10.35/CO2e. AS/MLDB

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