Backloading buoyancy: Carbon markets' year in the sun

The week in clean energy saw predictions the value of carbon markets will rise in 2014 for the first time in years, while Europe also laid out options for a 2030 renewables policy.

The value of the global carbon market will reach €46 billion in 2014, according to Bloomberg New Energy Finance forecasts published last week. This will be up 15 per cent from last year but leave it well below the record high of €98 billion in 2011. The first annual increase in carbon market trading values since 2011 will owe much to European Union action to delay allowance auctions, which would have otherwise taken place in 2014-16.

The European Union proposal to temporarily curb the record glut of carbon permits got approval last Wednesday from representatives of EU member states, the European Commission said in a statement. The EU Climate Change Committee backed a plan to postpone sale of 900 million carbon permits from 2014-20 to 2019-20. The volume to be delayed in 2014 will depend on the starting date of the carbon-market fix, which needs to be scrutinised by EU ministers and the European Parliament.

The commission said it is seeking to shorten the scrutiny period from the regular three months. Under the measure approved last week, the EU will delay sales of 400 million permits in 2014 if backloading starts in the first quarter; or 300 million if it begins in the second quarter.

This decision is significant as it was the final major approval required for backloading to be implemented. The only question remaining is when in the next four months will the new regulation come into force, enabling auction cuts to begin.

On a separate, but related note, the European Parliament’s environment and industry committees supported a call for the EU to adopt at least a 40 per cent carbon-reduction goal by 2030 in a non-binding resolution.

"Such a target should be implemented by individual national targets, taking into account each member states’ individual situation and potential,” according to an amendment approved at a joint meeting of those two committees in Brussels on Thursday.

The EU is debating a 2030 policy framework for energy and climate. The European Commission is to outline options on January 22.

The 2030 carbon target proposed in the green paper is an early-stage proposal that will have to go through a long legislative process before becoming law. There are diverse views on what the final targets should be and the final number could therefore be different from the proposed 40 per cent. Whether the carbon target will be ambitious depends on how much emission abatement will be delivered by the other parts of the 2030 package.

On the topic of 2030, environment and energy ministers from eight nations, including Germany, France and Italy, are calling on the EU to adopt a 2030 target for renewable energy also.

“A target for renewable energy is crucial to provide the certainty that can ensure cost-effective investments in energy systems that will strengthen the internal market for energy,” ministers from Germany, France, Italy, Austria, Belgium, Denmark, Ireland and Portugal wrote in a letter to EU Energy Commissioner Guenther Oettinger and EU Climate Commissioner Connie Hedegaard.

When the responses to the commission’s consultation on the 2030 framework came out four months ago, only France, Denmark and Austria were unreservedly in favour of another renewables target, whereas there was broad support for a 2030 carbon target. The balance has shifted with a post-election Germany declaring its position. This leaves the UK as the biggest naysayer, arguing for a more flexible approach to decarbonisation than a renewables target would allow. That is a position that seems to be getting more entrenched, as the UK’s opposition Labour Party now appears to have come round to it too, judging by comments from shadow energy minister Tom Greatrex.

EU carbon

European carbon slumped last week despite a brief jump in prices around a vote on a plan to fix the region’s oversupplied emissions market. European Union Allowances for December 2014 finished the week 4.4 per cent down. EUAs for delivery in December ended last Friday’s session at €4.60/t on ICE Futures Europe exchange in London, compared with €4.81/t at the close of the previous week. Carbon allowances for December 2014 stayed in a €4.70-4.80 range during the first three trading days. Front-year permits jumped to €4.84/t on Wednesday after the Climate Change Committee endorsed a proposal to cut permit sales this year.

Prices fell back on Thursday amid supply concerns. There are still 240Mt of permit auctions planned in the first quarter of this year, while New Entrants’ Reserve sales – totaling 73Mt – are set to continue until April. UN Certified Emission Reduction credits for December 2014 lost €0.02/t last week to finish at €0.34/t.

Originally published by Bloomberg New Energy Finance. Reproduced with permission.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles