Carbon emissions trading update: the coalition of countries preventing an early start to the Market Stability Reserve (MSR) fell apart today as the Czech Republic reneged on their earlier stance that saw them partnering with other countries to form a blocking minority.
The group of countries led by Poland had, until now, held firm on a 2021 start date while the likes of Germany and France stuck to the opposite extreme of a 2017 start as their position. Today’s development means that Latvia, as current EU President, has the mandate to begin trilogue discussions with the EU Council of member states, the Commission and the EU Parliament on a 2019 start date. Under this mandate the backloaded allowances and unallocated allowances will go straight into the reserve in a move that is likely to be very bullish for longer term carbon markets. It is unclear on whether the mandate includes any allowances being set aside for an industrial innovation fund, as promoted by the Parliament group.
Essentially agreement on a common position must be reached by the EU Council and EU Parliament for the bill to be finalised as the Commission have said that they are flexible on the start date. The next trilogue talks are scheduled for 5th May, 2015. These talks should now be relatively straightforward as the main sticking point has been overcome. “It looks like the carbon reserve is a done deal” says Trevor Sikorski, analyst for Energy Aspects in London. “There’s very little that the council, the parliament and the commission disagree on” he added.
The blocking minority stance had weighed heavily on the market after initial optimism for ambitious EU ETS reform gradually lost momentum. A bullish sentiment had already returned to the EU ETS market for a number of reasons, as described in our last two weekly updates. Carbon emissions trading markets have reacted to the news by sending the price of an EUA to a high of €7.53, a level not seen since February 2015. It looks set for further gains this quarter, traditionally a period of strong demand for carbon.
More bullish long term price signals will emerge as market analysts adjust their base case price forecasts higher to accommodate the new MSR reality. To explore the price forecasts and implications for compliance costs of your company, please contact us. Alternatively please click here to subscribe to our weekly update.
