Tighter cap fails to lift EU carbon

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The overall carbon cap in the  EU Emissions Trading Scheme (EU ETS) has been cut by 2.4 per cent for 2013, the European Commission announced on Friday. The reduction means tighter restrictions on emissions when the third phase of the scheme begins in that year. The announcement had little impact on trading on the EU carbon market, however, with prices remaining down over the past week.

The benchmark Dec 2010 EUA futures contract closed at €14.65 on Friday July 9, up on the day but well down on the week. The market is down from levels above €15 during June and a 2010 peak at €16.50 in May. The ongoing impact of recession and doubts about economic recovery amid the bloc’s debt problems are keeping a lid on demand. Dec 2013s followed the benchmark trend and closed at €16.61.

EUAs for 1,927 million tonnes of CO2 output would be available to emitters in 2013, down from the 1,974 tonnes originally touted. But carbon analysts said there was not yet enough breakdown of the overall cap to give a clear indication of how tight the caps will be on industry after 2012.

The Commission said further revisions to the cap, the supply of EUAs, would be made up to 2013 while the size of demand also remains uncertain. “Today’s cap is missing emissions from aviation and from new installations, new sectors like aluminium and new gases like nitrous oxide, which will be covered under the scheme from 2013,” Barclays Capital carbon analyst Trevor Sikorski told Reuters.

Europe’s policymakers and legislators are also still debating whether or not to raise the overall EU emissions reduction target from 20 to 30 per cent per cent below 1990 levels by 2020. This would likely have a profound impact on ETS caps. The Commission says at this stage the cap will be tightened by 1.74 per cent a year, down to 1700 million tonnes by 2020. This compares with caps of over 2000 million a year in the early years of the scheme.

The Dec 2010 CER contract closed the week at €12.20, also down over the month. The secondary trade in CER offsets closely tracks the EUA market. But a narrowing spread between benchmark EUA and CER prices opened up again last week with the CER discount widening to €2.45 by week’s end. Later-dated CERs continue to languish, the Dec 12 CER more than €3.50 below EUAs for the same year due to failing confidence over new CER supply coming to market in the Kyoto period and an uncertain future for the CDM beyond that time.

Posted on July 16, 2010 · in Europe

Tagged as: carbon cap • Carbon Market • EU ETS