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EU ETS gets a confidence boost as backloading approved

Price of carbon likely to increase by 35% next year to €6/tonne

Oslo (10 December 2013)

Today, the European Parliament cleared the final hurdle of backloading 900 million allowances from the European Emissions Trading Scheme (EU ETS) by adopting the legally-clarifying amendment to the ETS Directive by a large majority, according to Thomson Reuters Point Carbon, the leading provider of market intelligence, news, analysis, forecasting and advisory services for the energy and environmental markets.

Analysts from Thomson Reuters Point Carbon are available for interview, or to take questions on the crucial result.

“Today’s vote finally confirms that 900 million allowances will be backloaded from the EU’s Emissions Trading Scheme (EU ETS) as of next year, said Hæge Fjellheim, Senior Policy Analyst, Thomson Reuters Point Carbon. “This outcome was largely expected as the Parliament has merely confirmed its position from July but it takes away the last spark of uncertainty” she added.

According to Marcus Ferdinand, Senior Market Analyst with Thomson Reuters Point Carbon, “The positive outcome of the Parliament’s vote removes a large portion of risk and could lead to an increase in EU Allowances (EUAs) prices as it ends a lengthy and cumbersome policy process that has kept the market busy for the past two years. However, prices have been rising in recent days and we could see a short-term ‘buy the rumour sell the fact’ reaction where traders take profit on the anticipated outcome”.

As a mere formality, the Council will have to adopt the legal clarification to backload allowances which will most likely happen on 16 December. Furthermore, on Wednesday, 11 December, the Climate Change Committee, which consists of member state experts, should then discuss how backloading will actually be implemented. Three options have been proposed by the European Commission. Wednesday’s meeting will most likely provide an indication as to which option member state representatives favour and this could have an impact on carbon prices this week. According to Fjellheim, “the detailed implementation of backloading will need some more time, as the process involves a formal proposal by the Commission, a vote in the Climate Change Committee as well as a scrutiny period by Parliament and Council which will most likely start in January, with a final adoption expected around May 2014.”

Ferdinand concluded: “We expect some upside to EUA prices in the coming months as the implementation of the measure becomes more concrete. Assuming the first allowances will be withheld from the market in the second half of 2014, we forecast the 2014 carbon price will increase by 35% compared to this years’ price, to an average of €6/tonne”.

Note to editors
• Backloading, proposed by the European Commission as a short-term solution to the oversupply in the market, is the temporarily withholding of carbon emission allowances due to come to market from 2014.
• The Parliament adopted its position on backloadingon 3 July, supporting a one-off intervention of 900 million allowances. This position was echoed by the Council through adoption in COREPER on 20 November and is expected to be formally confirmed by Ministers of the Agriculture and Fishery Council on 16/17 December. This would end the Co-decision procedure with regards to the legally clarifying amendment to the EU ETS Directive and would launch the start of the Comitology process that will detail the backloading measure.
• Market surplus has lead to a meltdown of prices in the EU ETS. The estimated average global carbon price dropped by 49% to €5.82/t last year, down from €11.45/t in 2011 and €13.09/t in 2010.
• The Kyoto Protocol to the United Nations Framework Convention on Climate Change, which entered into force in February 2005, resulted in the launch of the EU’s Emissions Trading Scheme (ETS). The EU ETS is the world’s first international greenhouse gas emissions trading scheme. It works on a cap - and - trade basis, where the total allocation is set at the start of a trading period. EU Allowances (EUAs) are the tradable units under the EU ETS. Up to a certain limit, companies regulated by the EU ETS are also allowed to import carbon permits from third countries (CERs and ERUs).
• The third phase of the EU ETS runs 2013-20 when the fourth phase begins (2021 to 2028).

For further information, or to arrange an interview, please contact:

Candida Jones
PR Manager, Thomson Reuters Point Carbon
Mob: +44 (0) 777 5754 763
E-mail: candida.jones@thomsonreuters.com

Marcus Ferdinand
Senior Market Analyst, Thomson Reuters Point Carbon
Mob : +47 90 81 25 06
E-mail : marcus.ferdinand@thomsonreuters.com

Hæge Fjellheim
Senior Analyst, Thomson Reuters Point Carbon
Mobile: +47 93 41 94 27
E-mail: hege.fjellheim@thomsonreuters.com