EEA/EFTA states likely to start auctioning in June

Source: Heren

2019/05/03

This analysis has originally been published in an extended version for ICIS EU carbon subscribers on 24 April at 16:00 CET.

  • On 23 April, the European Commission announced that the EEA EFTA states, including Iceland, Liechtenstein will soon be able to auction emission allowances
    • EEA/EFTA volumes will be auctioned on the EEX on the common auction platform
    • Auctioning is expected to start in June 2019
    • EEX will soon publish the updated 2019 auction calendar

Announcement

  • Yesterday’s announcement was in line with our expectations as we estimated EEA/EFTA auction volume would start in June 2019 – note however that the spread out will be between 2019 and 2020 and not only in 2019
  • On the market side, the announcement had been long expected so the Commission’s note is unlikely to have come as a surprise

Supply implications

  • As of Nov 2017, it was stated that 41.98m EUAs of the EEA-EFTA States for 2013-2018 were withheld from auctioning (European Commission link) – the breakdown on an annual basis is as followed:
    • 2013: 8.4m
    • 2014: 8.8m
    • 2015: 2.2m
    • 2016: 6.6m
    • 2017: 8.0m
    • 2018: 7.9m
  • On top of this 41.98m must be added EEA-EFTA auction volumes for 2019 and 2020 which are unspecified by the Commission
  • According to our estimations, taking into account the share of the EEA-EFTA auction volumes as part of the total auction volumes, the breakdown on an annual basis (excluding MSR withdrawal) is as followed:
    • 2019: 8.7m
    • 2020: 9m
  • So overall, the total EEA-EFTA volumes to be auctioned between June 2019 and December 2020 would be in the range of 59.7m (excluding MSR withdrawal)

Implications

  • At this point it is unknown how the 42m EEA-EFTA volumes will be spread out between 2019 and 2020
    • however, an option would be to keep the 2019 and 2020 volumes as planned and add the 42m historical volumes equally spread out as followed
      • 2019: 8.7m (2019 estimated volume) + 15.5m (unscheduled volume from 2013-2018)
      • 2020: 9m (2020 estimated volume) + 26.5m (unscheduled volume from 2013-2018)
  • This would lead to 3.5m and 3m EEA-EFTA volumes reaching the market in 2019 and 2020 respectively on a monthly basis over 19 months between June 2019 and December 2020
  • In our opinion, the EEA-EFTA announcement has limited implications from a fundamental basis because the volume represents around 5% of the average monthly auction volume in 2019 (around 56m) which is relatively limited

The EEA-EFTA announcement put into context

  • However, the announcement must be seen in the current market context:
    • After the 30 April 2019 compliance deadline, it remains to be seen how much residual compliance demand remains in the market to support the EUA price
    • Also there are rumours of a new vote on a Brexit deal next week
      • the EUA price had been supported early in April when the EU leaders discussed giving the UK an extension and the prospect of a hard Brexit decreased
      • while the Brexit extension is until October, a negative tone surrounding the Brexit withdrawal agreement could generate volatility in the market
    • Finally, with the EEA-EFTA volumes coming to market in June, it is worth noting that June already sees the highest auction volume since the start of 2019 (58.9m)
  • So overall, while the EEA-EFTA announcement has limited fundamental impact and is not a key supply driver, it adds up to some of the elements mentioned above which could potentially pressurised the market on the downside from a sentiment point of view

Yann Andreassen is Senior Analyst - EU Carbon & Power Markets at ICIS. He can be reached at Yann.Andreassen@icis.com

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