The ink is still wet on the large post-2020 reform process for the European carbon market, EU ETS, and market participants are digesting the impact of the reform process. While one could assume that this would cause the EU ETS to see calmer waters ahead, Philipp Ruf, Director of EU Power and Carbon Analytics at ICIS, expects that 2018 will be another year of excitement for the market.
While the overall lines of the system were fixed in the EU ETS reform, several secondary legislation have to be changed to implement those big lines. On top, the carbon market will likely be one of the first markets where more detailed and practical discussions regarding Brexit will take place.
While the above-mentioned developments are all triggered from politicians and civil servants from Brussels and the national capitals, the most crucial changes are to be expected on the trading floors and strategic departments in energy utilities, energy-intensive industries as well as from the investment community. Marcus Ferdinand, Lead Analyst of EU Power and Carbon at ICIS, expects that, ”2018 will show how compliance companies and financial institutions are preparing for the revised EU ETS”.
He concludes, “The key price-driving factor of the re-designed EU ETS will be the start of the Market Stability Reserve (MSR) in 2019. Our models suggest that the start of the MSR will turn the EU ETS upside down.”
With carbon prices expected to increase, large-scale fuel switching in the power sector will become economically viable.
Ruf says, “For energy-intensive industries the post-2020 timeframe makes it necessary to take a more pro-active approach with better preparation and new strategies. That makes us believe that short-term volatility can be expected in carbon markets in 2018.”
All of these EU ETS changes and developments are happening while power markets all over Europe are under transition towards low-carbon power systems. Debates about coal phase-outs, minimum carbon prices, capacity markets and renewable subsidies will not suddenly disappear in 2018, but will intensify and drive power and carbon prices significantly. As several key elections have been held in 2017, 2018 will show what the new governments mean for energy and especially power markets.
Ferdinand concludes, “Despite many unknowns for the power sector in 2018, we know with certainty that utilities as well as energy-intensive industries need to follow political and market developments all over Europe closely to be able to prepare for the revised EU ETS as well as to build a competitive advantage in the national power markets.”
Power Markets Editor, ICIS
Direct: +44 (0) 207 911 1933
ICIS is the world’s largest petrochemical market information provider, with divisions spanning energy and fertilizers. Our aim is to give companies in global commodities markets a competitive advantage by delivering valuable information and analytics tools which enable our customers to identify and react to opportunities in markets which are constantly evolving. We have more than 30 years’ of experience in providing pricing intelligence and news, forecast data, market analytics and independent consulting to buyers, sellers and analysts.
With a global staff of more than 600, ICIS has employees based in London, Houston, New York, Singapore, Dubai, Shanghai, Guangzhou, Beijing, Mumbai, Tokyo, Karlsruhe, and Milan. ICIS’ team of journalists is engaged in reporting market prices and news, and ICIS is fully committed to upholding the highest journalistic principles of verification, corroboration and authentication. ICIS has a compliance framework that along with its methodologies and business processes adheres to the requirements of the IOSCO PRA Principles.
About Reed Business Information
Reed Business Information (RBI) is a fast-growth provider of information and analytics, solving critical problems for businesses globally. Our strong global products and services hold leading positions across a wide range of industry sectors including finance, agriculture, petrochemicals and aviation where we help customers make key strategic decisions every day. RBI is part of RELX Group, a global provider of information and analytics for professional customers across industries. http://www.reedbusiness.com
About RELX Group
RELX Group is a global provider of information and analytics for professional and business customers across industries. The Group serves customers in more than 180 countries and has offices in about 40 countries. It employs approximately 30,000 people of whom almost half are in North America. RELX PLC is a London listed holding company which owns 52.9% of RELX Group. RELX NV is an Amsterdam listed holding company which owns 47.1% of RELX Group. The shares are traded on the London, Amsterdam and New York Stock Exchanges using the following ticker symbols: London: REL; Amsterdam: REN; New York: RELX and RENX. Total market capitalisation is approximately £33.1bn|€37.7bn|$44.3bn. www.relx.com