Fast-track MSR introduction

EIGHT, five, six, four, and now five euros per tonne. Price volatility so far this year show how Europe’s emissions cap and trade market (ETS) remains bumpy, weak and thus ineffective at changing behaviours. The plot line below is hardly a curve.

ets-msr-blog-eex

2016 EUA spot (€) via EEX.

But weren’t such instabilities supposed to have been fixed? An ETS ‘market stability reserve’ (MSR), agreed last year and operating as from 2019, is intended to adjust allocation, stabilise supply-demand balance and so steady prices.

Evidently it is yet to have such an effect. Consequently levels of confidence in a meaningful ETS contribution to urgent EU GHG emission reductions and clean-tech innovation are back in the doldrums.

If the scheme is not to be abandoned then the next few months are crucial. Five or more years of waiting would be too late as in all quarters political support ebbs away. Trust in ETS should be restored without delay, within the proposed amending act now before Parliament and Council.

Ah … but if only it were so easy,” some may reply.

It’s true the MSR negotiations were sometimes fraught. But in the end EU institutions did find a reasonable outcome on its general design, including start date, trigger thresholds, treatment of back-loaded and other unused allowances, reporting and review. None of these elements need now be re-opened.

However by far the biggest issue the ETS still struggles with is the huge surplus of excess tickets swamping the market. Under present rule, it will take around a decade to move most of these to the reserve, thus prolonging the market instability pictured above.

But what if initial MSR transfers could happen more swiftly? What if e.g. instead of 12% each year of surplus allowances moved from auctions to reserve  (applied at 1% per month) this rate is doubled for the first three years (24% per year, 2% per month)?

The impact of such an amendment, assuming 2.7 billion allowances in 2017 circulation, would be an extra 750 million tonnes approximately set aside, on top of a similar amount under the exiting rule. If a 24% rate ran for 4 years, the extra would be around 900 million.

Here is how the amendment could look in the present proposal :


Amendment X
Article X new
Amendment to Decision (EU) 2015/1814

Decision (EU) 2015/1814 is amended as follows:

In Article 1 the following paragraph is inserted after paragraph 5:

5a. In derogation from the first sentence of paragraph 5, for the years 2019, 2020 and 2021, the number of allowances that shall be deducted from the auctioned allowances and placed in the reserve shall be equal to 24% of the total number of allowances in circulation.


Such an amendment can in theory be tabled by any EU institution although in practice EP 1st reading committee deadlines have passed. Therefore this points to one or more Council delegations or the Commission that should act first.Since in terms of a reversal to single market harmonisation the EC has the most to loose if ETS is lost, it should act now. ( Article 250 empowers the Commission to amend proposals at any time during negotiations.)

Both senior EC officials and the EP rapporteur Ian Duncan have in recent days signalled that MSR adjustment is an option that should be considered.

Lastly it is worth reminding that an MSR amendment will remain consistent with the 2030 framework agreed by the European Council two years ago, in particular section 2.3 which specifically endorses “an instrument to stabilise the market“. ❧

2015 ETS revenues highest yet

Last year was a record-breaking year for ETS revenues with 27 EU member states sharing €4.88 billion in total revenues, around 50% more than the previous year and beating the previous record set in 2013 by more than €1.2 billion.

ETS and carbon trading : Vapor rises from the Grangemouth Refinery

Total phase three (2013-2020) ETS revenues now stand at €11.7 billion among member states and €13.8 billion if EIB-held NER-300 innovation funding is added.

The table below shows the country-by-country data. Ireland, the only country still not to have met an end-July reporting deadline, could add approximately €40 million more.

Country 2013 (€m) 2014 (€m) 2015 (€m) Total (€m)
Austria 55.8 53.6 78.6 187.9
Belgium 115.0 97.1 141.6 353.7
Bulgaria 52.6 36.4 121.8 210.9
Cyprus 1.9 0.7 1.4 4.1
Czech Republic 80.7 55.7 111.5 247.9
Germany 790.3 750.0 1,110.2 2,650.5
Denmark 56.0 48.1 71.3 175.5
Spain 346.1 330.1 489.5 1,165.7
Estonia 18.1 7.4 21.3 46.8
Finland 67.0 63.5 93.8 224.2
France 219.2 215.3 312.1 746.7
Greece 147.6 131.1 195.2 473.9
Croatia 0.0 0.0 87.0 87.0
Hungary 34.6 56.5 83.3 174.4
Ireland 41.7 36.0 Late report 77.7
Italy 385.9 408.6 543.4 1,337.9
Luxembourg 5.0 5.2 6.8 17.0
Lithuania 20.0 17.3 28.4 65.7
Latvia 10.8 10.2 15.3 36.3
Malta 4.5 3.9 6.2 14.6
Netherlands 134.2 131.1 187.3 452.6
Poland 244.0 78.0 132.8 454.9
Portugal 72.8 67.1 99.2 239.1
Romania 122.7 97.9 195.2 415.8
Sweden 35.7 33.6 52.4 121.7
Slovenia 17.7 16.6 24.4 58.8
Slovakia 61.7 57.6 84.5 203.8
UK 485.4 401.5 586.3 1,473.1
TOTAL 3,627.0 3,210.2 4,880.9 11,718.1

Source: EEA ROD

The revenue increase is no surprise given higher EUA prices over the period. The EEX chart below shows the trend over the last four years. Given the price instability we’ve witnessed this year the 2015 record is unlikely to be beaten for some time.

EUETS 4-yr price chart EEX

Higher prices last year were sufficient to counter-act the effect of 300 million allowances transferred out of auction schedules and into the new Market Stability Reserve (MSR) by way of the 2014 ‘back-loading’ decision, the schedule of which is shown here (Annex 4).

EUETS annex 4 - backloading schedule

Revenues includes those from the aviation sector, which are listed under a separate sub-heading in the detailed country reports. Each is accessible by clicking on the country name above.

The Commission is expected to published formally the 2015 revenues as part of its annual carbon market report due in October or November.❧

20 July package, all links

trio EC

Links for the ‘non-ETS’ Commission climate legislative proposals &c adopted on 20 July 2016. For language translations, interpretation &c, click though on respective pages.

Press releases & background memos

Press conference videos

EC legisaltive proposals

Other EC communications

EC impact assesments

Media

Reactions

Background studies

EC road-maps

EU ETS income data by country

coal power station sunset

Since 2013 EU member states are required to report annually on revenues received from auctioning allowances used in the greenhouse gas emissions trading scheme (EU ETS).

The table below shows each country’s total income for 2013 and 2014, as recorded in the Reporting Obligations Database. Over two years Germany received the most cash at €1,540 million while Cyprus the smallest at €2.7 million.

While the data shown is not new, it is the first time that these multi-annual totals have been published together, as usually the Commission prefers to play down this issue.

Country 2013 (€m) 2014 (€m) Total (€m)
Austria 55.8 53.6 109.3
Belgium 115.0 97.1 212.1
Bulgaria 52.6 36.4 89.0
Cyprus 1.9 0.7 2.7
Czech Republic 80.7 55.7 136.4
Germany 790.3 750.0 1,540.3
Denmark 56.0 48.1 104.1
Spain 346.1 330.1 676.2
Estonia 18.1 7.4 25.5
Finland 67.0 63.5 130.5
France 219.2 215.3 434.6
Greece 147.6 131.1 278.7
Croatia 0.0 0.0 0.0
Hungary 34.6 56.5 91.1
Ireland 41.7 36.0 77.7
Italy 385.9 408.6 794.5
Luxembourg 5.0 5.2 10.1
Lithuania 20.0 17.3 37.3
Latvia 10.8 10.2 21.0
Malta 4.5 3.9 8.4
Netherlands 134.2 131.1 265.3
Poland 244.0 78.0 322.0
Portugal 72.8 67.1 139.9
Romania 122.7 97.9 220.6
Sweden 35.7 33.6 69.3
Slovenia 17.7 16.6 34.4
Slovakia 61.7 57.6 119.3
UK 485.4 401.5 886.9
TOTAL 3,627.0 3,210.2 6,837.2

The scope and characteristics of the ETS means that majority of revenue comes from firms burning coal to make electricity. This shows in the data for example by comparing UK with France, where in the later country nuclear’s share of the power mix is much larger. The UK also shows a big drop from one year to the next triggered by the ongoing closures of many large coal-fired power plants.

Between 2013 and 2014 the total revenue fell by £416 million, even when carbon prices were higher in the later year. The main reason for this I suspect is an phase-in of Article 10c schemes, whereby certain member states direct utility companies to invest in certain related objectives as a condition for temporary free allocation. These national plans only started during 2013 will have taken some time at the start to build-up momentum.

The chart total of €6,837m is not the overall ETS revenue to date. As well as small amounts raised in phase 2 by a few countries, the European Investment Bank auctioned 300 million phase 3 allowances between 2011 and 2014 raising €2,157 million for green-tech demonstration support. Adding this amount brings the overall phase 3 total to date to €8,994 million.

I will update for 2015 and subsequent years after the respective filings are done. ❧

 

 

#eu2016sk agendas

bratislava-castle-day

Slovakia will chair Council meetings during the second half of 2016. Here at-a-glance are the dates and draft agendas for the ministerial sessions.

Environment Council

  • 17 October: Luxembourg
    • Non-ETS legislative proposals: policy debate (web-streamed)
    • UN climate meetings, Marrakech: conclusions
    • UN biodiversity meetings, Cancun: conclusions
    • Water policy: conclusions
    • A.O.B: CITIES, nature law, transport
  • 19 December: Brussels
    • ETS legislative proposal: poss. general approach
    • Waste package (4-parts): progress report
    • Updates on international meetings x4

Energy Council

  • 5 December: Brussels
    • Energy efficiency package (two proposals): policy debate
    • External relations: exchange of views
    • AOB: Updates on other matters (see list in source doc)

Source document: Provisional Council agendas during the Slovak presidency.

Informal meetings

Environment and energy ministers will also hold back-to-back informal meetings in Bratislava on 11-13 July. eu2016.sk/en

Outline agenda

  • Monday 11 July : Water
  • Tuesday 12 July (morning): Climate international
  • Tuesday 12 July (afternoon): Joint session with energy ministers
    • financing
    • governance
  • Wednesday 13 July: Energy only

Documents (environment part)

 

Draft planning template

plan

The Commission met today with member states to discuss a first draft template for prospective “national energy and climate plans” for the period after 2020. A copy of the document can be found here. Depending on the outcome of the ongoing discussions, the template could form part of an EC legislative proposal by the end of this year. Parliament, the Commission said last week, would be consulted later. ❧

Centrica uninterested in nuclear buy

Key Speakers At Ceraweek 2012

Centrica CEO Iain Conn was in Brussels yesterday to talk policy and field questions.

I asked him if he was interested to increase his company’s 20% stake in the UK’s eight remaining nuclear power plants, co-owned with EDF since 2009.

Since last year, the EDF Group has sought to raise cash from asset disposals in several locations including e.g. the UK by selling a further share of its main generation unit.

Essentially, Conn rejected the idea. He said he sees his company’s present 20% holding as being like an “annuity” in assets that were coming to their “end of life, closing in the next 10 to 20 years or so” adding “if anything we’re probably a seller … if the price is right.”

Responding to a seperate question on the Hinkley Point C nuclear new-build project, Conn said Centrica had spent “£321 million on its 20% share of project’s early development costs” before quitting in 2013, the year before the former BP executive joined the company.

In his speech Conn had said that Centrica was open to nuclear being part of the future energy mix in locations where there is government support. ❧