New auction timetable needed if carbon allowances back-loading passes vote
Any back-loading of EU carbon emissions allowances (EUAs) is unlikely before the second quarter of 2014, analysts say, as passage of the measure would require a change in their auction schedule, due to start this year.
The back-loading proposal - to delay the sale of 900m EUAs from 2013-2015 until 2019-2020 - will be put to a second European parliament vote in July after being rejected in April (see EDCM 16 April 2013 and EDCM 7 May 2013).
Experts agree it is unlikely that back-loading can be implemented before next year.
Trevor Sikorski, head of natural gas, coal and carbon at consultancy Energy Aspects, said he thinks implementation is unlikely until the second quarter of next year.
Jan Frommeyer, managing director of German consultancy Tschach Solutions, estimated an April 2014 start date if there is a yes vote in July, while Jefferies Bache's carbon analyst, Matthew Gray, said: "Ignoring regulatory spikes, prices should remain suppressed for the rest of the year."
Delayed implementation would derail the European Commission's current auction timetable and a new one would have to be agreed in the commission's climate change committee, made up of representatives from EU states' climate ministries.
Analysts say that not only the timetable might shift but the rate at which allowances are held back might also be revised.
Frommeyer said the commission could delay the period for which it will withhold allowances, depending on when any back-loading proposal is adopted into the auction calendar. For instance, 400m EUAs could be withheld in the first 12 months after back-loading is enacted, with 300m and 200m kept back for a further 12 and 24 months respectively.
Sikorski said another option would be for the commission to remove the full 900m from auction volumes in 2014 and 2015.
Confirmation of a second vote failed to boost carbon prices this week, as the possibility had been largely factored in and uncertainty about its result remains high. Instead, the benchmark EUA 2013 ticked down because of profit-taking after gains in recent sessions (see graph).
"As the text went back [to the committee] in April, the market knew that there would be another vote some time this year," Bernadett Papp, carbon analyst at environmental brokerage Vertis, said.
The fact that members of the European parliament (MEPs) can now amend the text again has created doubt about how much difference there might be between the current proposal and the version up for vote in July, she said.
Meanwhile, she said, carbon prices are unlikely to rise significantly unless there is "important" news, such as a confirmation of the stance of German chancellor Angela Merkel on the back-loading proposal.
Germany has a large share of votes in the European Council, which is also due to rule on the proposal. Last week, Merkel expressed support for it, fuelling a jump in carbon prices.
Unicredit said in a research note this week that, although Merkel called for reform after her country's general election due on 22 September, her support has considerably boosted the proposal's chance of success.
It is not the only factor, however. One trader highlighted that the European economic outlook in particular is crucial to persuade MEPs to adopt the proposal. Silvia Molteni and Marie-Louise Du Bois
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