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UPDATE: Fast-track approval for carbon market back-loading sought

08 Jan 2014 18:27:41

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Updated throughout to add comment and detail.


European countries in the Climate Change Committee (CCC) agreed on Wednesday on the timings and volumes of the back-loading of supply in carbon auctions, the European Commission said in a statement. 300m or 400m EU allowances (EUAs) will be withheld in 2014, depending on which quarter the measure starts.

Countries in the CCC formally voted through the front-running profile ( see EDCM 19 December 2013 ), after a change to the EU emissions directive in December 2013 clarified the powers of the commission to change the auction calendar ( see EDCM 16 December 2013 ).

The profile passed on Wednesday sets out that if the calendar is modified by the end of March, the 2014 auction volume – expected at 943m EUAs – would be reduced by 400m EUAs.

In this scenario, 300m EUAs would be taken out of 2015 auctions and 200m out of 2016 auctions.

If back-loading starts in the second quarter, 2014 auction supply would only be cut by 300m. That would be followed by 350m in 2015 and 250m in 2016.

The 2014 volume could be further adjusted from 300m or 400m, the commission added. This is to avoid countries where electricity generators still receive some free EUAs ending up with a negative auction volume.

“However, the shifted volumes are only minor – we assume them to be less than 15m [EUAs],” said ICIS analytics firm Tschach Solutions.

Scrutiny period

The commission is now looking to shorten the scrutiny period – in which the European Parliament and Council can object – from the usual three months, to allow back-loading of 400m EUAs to start this quarter.

Climate action commissioner Connie Hedegaard has written to the council and to the parliament’s environment committee, which will decide on the length of the scrutiny period.

Hedegaard said that “the commission hopes that the first allowances can be back-loaded very soon,” but that “we must also tackle the more structural challenges,” referring to a structural reform of the ETS which will be addressed on 22 January.

The vote outcome was largely expected and had been already priced in. Prices would only have risen if traders could be certain that 400m and not 300m would be back-loaded in 2014, said one source at a trading house. Hedegaard’s request to fast-track the scrutiny was not enough to reassure traders and prices shed ground after the vote.

A trader at a bank pointed to a “sell the fact” effect after the “rumour” of the vote outcome was previously bought.

Supply will also continue to come abundant to the market until back-loading is implemented, and on top of daily auctions the European Investment Bank is selling the remaining NER300 reserve. Silvia Molteni

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