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EU's ETS length increases as 2012 carbon emissions fall

02 Apr 2013 20:03:07 | edcm

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Carbon prices are stable as provisional data published on Tuesday show that companies' verified emissions in the EU's emissions trading system (ETS) receded in line with expectations in 2012, declining only slightly from their 2011 level.

The 10,105 installations (75% of the total) that met the 1 April deadline to report verified carbon emissions data for last year accounted for 1.786bn tonnes of carbon dioxide equivalent (tCO2e). According to the data, that gives a first estimate of a like-for-like drop of 1.4% in CO2 emissions from their 2011 figure of 1.811bn tCO2e.

The number refers to the same installations for both years and was calculated by omitting airlines, which were still excluded from the ETS in 2011, and installations that failed to verify their emissions.

Reported emissions are lower than the 2012 free allocation of 2.05bn EU allowances (EUAs), so the market is increasingly long, with 262m tCO2e surplus allowances added last year alone.

The latest data could up the pressure on MEPs to pass the back-loading proposal this month. Under the proposal, the European Commission plans to temporarily remove 900m EUAs from the system in phase III of the ETS (2013-2020).

It is the second consecutive year in which emissions have fallen year on year, as the European economic crisis continues to bite. Emissions have risen only in 2010 since the start of the recession in 2008 (see EDCM 1 April 2011).

Market reactions

Analysts said the emissions data are in line with expectations, which stable prices reflected on the day.

Jan Frommeyer, managing director at German Tschach Solutions, which specialises in providing trade-relevant information on the carbon market, said: "According to our interpolation of missing data, emissions dropped by 1.4% year on year, very close to our forecast numbers. Consequently, prices barely bothered."

UK-based NGO Sandbag said that ETS data reported to date imply a surplus of 840m allowances during phase II. "The extent to which new offsets will compound this oversupply will not be known until May, but some 555m offsets have already been surrendered into the scheme over 2008-2011," it said a statement.

Expected surplus

The NGO has previously warned that, unless limits are set on the use of offsets in the ETS, such credits could account for up to three-quarters of the expected 2bn surplus by 2020 (see EDCM 27 March 2013).

On 2 May, the Commission is due to publish information showing how many allowances or offsets respectively installations have submitted to cover their 2012 emissions. Final data will be made available on 15 May.

The provisional data show that emissions from combustion plants, including those for electricity generation, made up 72% of the 2012 total. The sector reported verified emissions of 1.285bn tCO2e in 2012, which is flat year on year, the data show.

The figure also shows that last year the power sector was slightly short as its installations received a free allocation of only 1.280bn for the period.

The year 2012 was the last for power utilities to receive free allowances with the exception of those in countries covered by a derogation, mainly in eastern Europe.

Jefferies Bache carbon analyst Matthew Gray said: "The overall weakness in the combustion sector surprised to the downside. This implies continued economic weakness because, despite heightened coal-fired power generation, utilities are still emitting less year on year."

In 2012, according to figures from Italian coal lobby Assocarboni, coal accounted for 33% of overall power production in Europe.

Of the total 1.285bn tonnes of CO2 emitted by the combustion sector last year, German emitters accounted for 355m, or 28%, against a free allocation of only 287m (see table for more details).

Most plants in Bulgaria and Cyprus missed the 1 April deadline and are excluded in the total emission figure. Silvia Molteni

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