UK, Germany reveal large EUA shortfalls
01 April, 2009
The UK and Germany have posted a “staggering” EU allowance (EUA) shortfall of more than 140 million for last year – with more installations yet to report.
In the first glimpse of emissions covered in Phase II the EU Emissions Trading Scheme (ETS), about 80% of installations – which accounted for 93% of ETS emissions in 2007 – reported their 2008 verified data, totalling 1.98 billion tonnes of carbon dioxide equivalent (t CO2e). There is no comparable cap, as some installations in some countries – chiefly Poland and Hungary – reported emissions despite their 2008 EUAs still not being allocated.
The data show that there are two sets of key buyers in the market, said Laurent Segalen, managing director of commodities at Nomura: firms in Germany, with an initial shortfall of around 90 million, and in the UK, with 51 million, although only 85% of installations have reported emissions so far in both countries. “Germany and the UK are pretty staggering, to be as short as they are,” he said.
Some of the installations holding a surplus of EUAs may “have logistical problems” in bringing these allowances to the market, Segalen said, such as those in Poland, where the government has yet to issue the 2008 allowances.
But projections show that the 2008 emissions are broadly in line with expectations, said Trevor Sikorski, an analyst at Barclays Capital in London. A like-for-like comparison shows a 4.3% fall in emissions last year compared with 2007, he said. He did, however, note that some analysts were forecasting a 6% fall, which may be why EUA prices traded up after the data was released.
December 2009 EUAs were trading around €12.20 ($16.14) at 3pm GMT, two hours after the data was published, up almost 4% on the close last night.
“The reaction of the market, by moving up 3-4%, means that there was no bad surprise, compared to projections,” said Segalen. “The models are working pretty decently.”
However, he did concede that ultimately “the market is probably shorter than the consensus ... but that was last year”, and emissions this year are likely to be much lower owing to recession. Sikorski added that EU industrial production over 2008 was down 1% on 2007: “This year it will be worse.”
Henrik Hasselknippe, Norway-based global head of carbon analysis at Point Carbon, estimated that there will be an overall shortfall of 184 million EUAs, or 9.5% more emissions than the cap, for 2008, once all the data is reported. This is against a cap of 1.927 billion t CO2e, he said, excluding the addition of Norway to the ETS and the new entrants reserve. “It’s a slightly larger shortfall than expected, but it’s in the ball park,” he said.
Hasselknippe attributes the reductions to both fuel switching by power companies, from coal to lower-emitting gas, as well as economic contraction. “We did have a substantially high carbon price in the first half of 2008, which may have encouraged some fuel switching,” he told Carbon Finance. “It’s not only a story about the recession, but also about the carbon market working and doing what it should.”
