Portugal says it will not sell 13.5m EUAs from phase II NER
Portugal will not sell any of the 13.5m EU allowances (EUAs) left over in its carbon emissions trading system (ETS) phase II new entrants reserve (NER), the country's environment ministry told ICIS on Thursday.
Experts agree that, although the refusal to sell will curtail the market supply ahead of the April phase ll deadline, the number of allowances from countries going ahead with their NER sales will still put pressure on prices.
The ministry said that Portugal will not put the allowances on sale because "the conditions for that were not met".
By the time of going to press, the ministry had not provided details to explain its statement. It could be, however, that it had failed to register with a suitable platform, such as the EEX, in time to sell off the allowances.
Last year, Portugal passed legislation to allow the sales volume which, according to previous legislation, was set to be retired (see EDCM 21 December 2012).
The ministry also said the overall figure of Portugal's leftover NER allowances could differ from the currently cited 13.5m. "We are still finalising the allocations from the new entrants reserve and only then will we know exactly how many allowances remain from the original reserve," it said.
Energy consultancy Nomisma's carbon analyst, Matteo Mazzoni, said the NER sales are expected to have a limited impact on prices in the coming five weeks, as the surplus of phase II allowances carried over to phase III continues to weigh on the market.
In the meantime, countries are also continuing to sell off phase III allowances in almost-daily auctions.
"The outlook is still bearish and the upward potential is linked to news regarding the back-loading," Mazzoni told ICIS.
The European parliament is due to hold a plenary vote on the back-loading proposal in mid-April, leaving little time for undecided member states, such as Germany, to make up their minds on whether to back it or not.
According to German consultancy Tschach Solutions' managing director, Jan Frommeyer, up to 30m EUAs left over from member states' NERs, excluding Portugal's, could be sold by the end of April.
"The biggest chunk is expected to come from Germany, which might sell up to 15m EUAs," he said. "However, no political decision [has been] taken in Germany whether to sell or to delete these excess EUAs."
He added: "The situation is still not 100% certain as some member states still allocate NER volumes to installations for the 2008-2012 period (most prominent, Germany) or have not decided how to treat the surplus."
With auctions becoming an increasingly important driver for carbon prices (see EDCM 14 March 2013), greater supply will obviously have an additional bearish effect.
"As this volume comes on top of the regular auction volume, it is obviously bearish for carbon prices in April," Frommeyer said. "Having said that, the second important price driver during April (despite the fundamental oversupply because of high auctioning) is for sure the political developments in Brussels around back-loading.
Without specifying the countries involved, a Unicredit carbon analyst said he "would expect 30m to 40m EUAs from NERs to be auctioned by the end of April".
The deadline to auction NER leftover credits is 30 April, when unsold credits will expire (see EDCM 18 March 2013).
Mazzoni said the deadline leaves a tight window for countries to organise auctions and sell the amounts.
Frommeiyer said that, if states want to sell their excess credits, there is a second question: "Are the countries able to sell the remaining volume before the end of April?" He said: "Because of these uncertainties, I would reduce the 30m EUAs to an expected sales volume around 20m in the next six weeks."
Mazzoni estimates unused EUAs from countries including Bulgaria, Germany, Denmark, Portugal, Ireland, Sweden, Romania and Cyprus to total about 70m. But not every country is expected to sell.
Tight EEX schedule
So far, the EEX, which is also hosting the majority of phase III auctions, has organised NER auctions for the Netherlands, Hungary, Lithuania, Czech Republic and the Belgian region of Flanders.
"No other auction than displayed in the current calendar is scheduled so far," the bourse told ICIS. It added: "EEX will inform the market at least two weeks in advance [if any other countries apply to auction off their NER volumes via the EEX]." This means that countries have only about two weeks left in which to register with the EEX and to have their auctions announced by mid-April.
However, there are other options for auctioning off any unused NER EUAs. For instance, the Warsaw Stock Exchange will sell around 200,000 carbon allowances left over from Poland's phase II new entrants reserve (see EDCM 13 March 2013).
Not all European countries have leftover allowances from their NER. Italy went short on the reserve, so its ETS new entrants have had to buy allowances on the market. Under ETS rules, the Italian government then has to reimburse the cost of their purchases (see EDCM 14 January 2013). Silvia Molteni
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