German Law ‘Ensures Coal Decline Won’t Drive Oversupply in EU Carbon Market’

–How to shut down a whole industry, German style

By Mathew Carr
Dec. 6, 2020 — LONDON: Germany’s phase out of coal and lignite power stations won’t cause an oversupply in the European Union’s carbon market because a reduction in the nation’s carbon allowance sales is enshrined in law, according to an official.

The nation’s Coal Exit Act from July 2020 will ensure a reduction in carbon supply takes place, the official said by email.

On Friday, EU carbon allowances closed above 30 euros a ton for the first time since Sept. 14, according to data from ICE Futures Europe.

Analysts are expecting higher prices in the fourth phase of the market, which begins next year and runs through 2030.

See this story on several reasons why the market is rising:
https://carrzee.org/2020/12/03/opinion-eu-co2-prices-head-for-record-high-as-germany-set-to-cancel-supply/

This from the government official, who is familiar with the situation:


Will the released carbon dioxide certificates lead to more emissions in other countries via the European emissions trading system?
No. The Coal Phase-out Act ensures that the coal phase-out is fully effective for climate protection. What the German coal phase-out brings for climate protection will not be cancelled out by additional emissions elsewhere in the EU. This is ensured by the German government by deleting allowances from the European Emissions Trading Scheme (EU ETS) to the extent that the coal phase-out leads to emission reductions (unless the allowances are already withdrawn from the market by the market stability reserve of the EU ETS). The national cancellation of allowances is done by a notification of the member state to the EU Commission. For this purpose, the member state designates the decommissioned installation and the extent of the planned deletion for subsequent years. The Commission then deletes the allowances from the auction budget of the respective member state. This was legally regulated on July 3, 2020 with the Coal Exit Act. One of the components of this law is the “Amendment to the Act on the Trading of Greenhouse Gas Emission Allowances”, which stipulates the deletion of the CO2 allowances released from the EU ETS.
Sources (in German only):
https://www.bmu.de/faqs/fragen-und-antworten-zum-kohleausstiegsgesetz/
https://www.bmwi.de/Redaktion/DE/FAQ/Kohlekommission/faq-kohlekommission.html
https://www.bmwi.de/Redaktion/DE/Artikel/Wirtschaft/kohleausstieg-und-strukturwandel.html

Open interest in the region’s carbon market has risen to its highest in two years. That’s a measure of trading positions that have not closed. Some hedge funds and investors are looking for investments that track climate-policy ambition.

See this chart:

The coronavirus pandemic has reduced emissions, trimming demand in the market. That’s offset some of the renewed interest in the allowances from investors.

From July:
Key Tweet – hit “translate” if needed after clicking Tweet

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