The 2014 verified emissions data, released on 1st April, revealed a significant overall decline of approximately 4.9%, marking the largest fall in five years. However, there is still some uncertainty surrounding the final figure as about 10% of emissions from installations covered by the EU ETS have not been published. The undisclosed emissions data primarily comes from Polish power stations, which are expected to have experienced substantial decreases. Although this will have an impact on the final figure, the effect is expected to be minimal.
Carbon emissions traders closely monitor the verified emissions data as it serves as an indicator of the underlying demand for EU Allowances (EUAs). While the current surplus inventory in the EU ETS reduces its significance, last year witnessed the first annual shortage of allowances since 2008, with 400 million metric tons (mt) of EUAs withdrawn from the market as part of the "backloading" initiative. Ultimately, the market fell short by approximately 200 mt. Since the initiation of backloading in March 2014, carbon prices have steadily risen from less than €5.
Analysts had predicted a potential decline in verified emissions of up to 6.3%. Consequently, prices were buoyed during morning trading as the market absorbed this bullish news, which was a welcome change since the EU Parliament voiced its support for starting the Market Stability Reserve (MSR) in 2018 back in February. As a result, EUA prices ended up 21 cents higher at €7.18 for the front December contract. The emissions decline can be attributed mainly to an increase in renewable power generation and a mild winter, leading to reduced energy consumption and subsequently lower CO2 emissions. Interestingly, despite a 1.2% increase in GDP across Europe, emissions decreased, which is an unusual decoupling as GDP growth typically correlates with increased emissions. This development raises questions about the impact of the EU ETS on the market or whether it was simply a result of abnormally warm winter weather. Only time will provide the answers, but current prices suggest the latter is more likely.
