Carbon trading update: Energy Aspects and Redshaw Advisors view on today MSR vote


With confusion surrounding the latest vote in Brussels in relation to the Market Stability Reserve implementation Redshaw Advisors, with the help of Energy Aspects’ Trevor Sikorski, provide some analysis of events.

The process of so-called market reform is never smooth in relation to the EU ETS, and today was another example. The much anticipated vote in the industry (ITRE) committee on the market stability reserve (MSR) this morning has finished, and was somewhat chaotic. The overall outcome from the vote was that:

  • Previously and widely agreed amendments regarding putting some, or all, of the backloaded volumes of EUAs directly into the MSR were eventually rejected.
  • Changes to the 2021 start date, bringing it forward to either 2017 or 2019, were also rejected.
  • The default position of support of the EC proposal on the MSR was agreed.

Now, ITRE will effectively hand the environment committee (ENVI) the MSR file back, without an agreed position to share. As a result, it gives the ENVI committee little to consider apart from what it has already discussed with regards to the EC proposal. While this may be considered a weakening of ITRE influence on the process, the influence of secondary committees on Bills is always marginal anyway, with lead committees determining the bill that goes to plenary—the eventual decision maker. Still, friction in ITRE does not suggest a smooth passage of the Bill, with a start date likely to be the item hardest to agree on, particularly through plenary and then council.

The proposed MSR file now passes onto ENVI, and it is scheduled to have its vote on 24 February. This date should not be affected by today’s lack of outcome. ENVI had met yesterday for discussions on the MSR and the broad consensus seen in ENVI yesterday appeared to be an earlier start date and a transfer of backloaded allowances to the reserve. The MSR should have a smoother ride in ENVI than it had in ITRE. After ENVI, it then proceeds to plenary and trialogue with council. The road is still quite long for the MSR and today certainly was not the end of the political debate on what it will look like.

The impact on the carbon trading market is likely to be bearish, with a bit of a sell-off of any short-term positions taken on expectation of a more positive vote. Prices for rest of week are likely to trade closer to the 7 €/t mark and away from the 7.5 €/t level seen earlier today. The impact of such interim policy votes on sustained price formation tends to be low, but adds to the market’s short-term volatility.

Additional feedback:

There have been a number of commentaries in relation to this matter, Redshaw Advisors provided some live comments just after the vote on twitter.  However the following two extracts provide some interesting insight into the political machinations affecting carbon trading.  Firstly from Bloomberg are comments from Theresa Griffin, MEP, shadow rapporteur for Socialists & Democrats:

I called time to consult with my group. We defeated Tajani’s opinion” referring to Tajani’s position that the MSR should start in 2021. “We have sent a clear message that 2021 is too little, too late. We have put the environment committee in a better position because they are not hampered by a regressive opinion from the industry committee

IETA’s Sarah DeBlock gave feedback on the vote was as follows:

The lack of an outcome from today’s vote should not be misinterpreted – the rejection was a result of differences amongst political groups on how the MSR proposal should be improved, but not a rejection of the Reserve itself. The debate in the European Parliament is not whether to reform the EU ETS with an MSR, but more about its design and timing.”

Passions are starting to run high in the MSR debate. The prospect of ITRE providing early resolution to strengthening the EU ETS beyond the originally proposed ‘standard’ MSR is off the cards. However we will get a good steer from the ENVI meetings culminating in a vote on 24th February.

Carbon trading impact: save for the flush out of any longs that were speculating on an accelerated start there is no new news.