This is a condensed version of our analysis for ICIS EU carbon subscribers that was originally published on 6 Dec 2018 at 09:39 CET.
Main pointsThe European Commission published a note on 5 December stating that Poland would auction 55.8 million allowances out of the allowances foreseen for derogation of the power sector (Article 10c). In our current modelling we assumed that most of the excess derogation volume would be auctioned in 2020 instead of 2019. Poland basically pre-empts this sale by one year already with parts of its excess volume. According to EU ETS Directive, the eligible eight member states can either carry the unused derogation volume over to phase 4 or auction them during the current trading period During 2013 to 2017 Poland has not allocated 113.3m allowances foreseen for free allocation to the power sector. We assess the market impact as slightly bearish for 2019, but supportive for 2020 prices compared to our current base case.
AnalysisAccording to our data, Poland has an accumulated derogation volume of 113.3m which it did not allocate between 2013 and 2017. Between 2013 and 2017, the following member states have accumulated 120.6m unused derogation volumes, already accounting for 21.4m auctions taking place during the same time period Excess derogation volumes So far, the Commission reported in a non-country specific manner that between 2013 and 2018 member states auctioned 27.0m excess derogation volume (21.4m between 2013 and 2017) Given that Poland has the lion’s share of all of the unused excess derogation volume, we see the risk for additional volume to be only on Poland’s side for additional auctions during 2020 Member states have until 30 September 2019 to indicate how much of the excess derogation volume will be auctioned in 2020, otherwise, these allowances will be banked towards phase 4 Until 2020, we assume that all eight member states will accumulate approximately 150m unused derogation allowances The Polish announcement means that auction volume for 2019 will increase, meaning, also the MSR withdrawal volume for 2020 and 2021 will be slightly higher compared to what we currently expect.
Political implicationsThe move by Poland has to be seen in light of the recent high EUA-price environment and the announcements made by Polish policy makers that the Commission should carry out an evaluation that caused prices to rise that quickly With such move, Poland does its own measure to ease the market balance for next year while at the same time potentially benefitting from the high price environment
Marcus Ferdinand is Head of European Carbon & Power Analytics at ICIS. He can be reached at Marcus.Ferdinand@icis.com
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