EU Carbon Rises Above €100 for First Time; ‘101.07 and 101.95 next, then “blue skies” above’, Says FuturesTechs (3)

EU carbon futures rose above €100 a ton for the first time and will probably keep advancing above €101 , according to FuturesTechs, the provider of technical analysis.



On social media: Linked In

Florian Rothenberg 

Senior Analyst EU Power & Carbon Markets @ ICIS

Will Germany cancel EUAs – if yes, how many?

According to Climate.Table the German Federal Ministry for Economics and Climate Action (BMWK) has reiterated its commitment to cancel #euets allowances to compensate for the additional emission reduction of its national coal phase-out.

The topic of cancellations has been in the centre of the debate already in 2019/20 when Germany decided for a regulated phase-out of their ~40GW of hard coal and lignite capacity by 2038. Back then Germany wanted to ensure the infamous “waterbed-effect” is avoided so closures had no negative impact on EUA prices. Therefore the final legal text committed to cancel the “residual additional emission reduction after MSR application” – which is probably what the BMWK now intends to do.

❓But how on earth can we calculate this?

➡️In the case of coal closures, the EU ETS legislation in theory allows to cancel as many allowances as the power plant concerned has emitted in the five years preceding their closure. For Vattenfalls 1.6GW Moorburg plant, which stopped operating in 2021, that would mean 24m allowances. For all closures that happened in 2021 and 2022 we calculated around 120Mt – but this is not the “residual-effect”.

➡️The residual effect of capacity closures on emission is not so straightforward – it depends on fundamental factors such as weather, fuel prices and nuclear availability. You actually need a power system model to calculate this. In 2021 coal closures had a lower effect on emission because high carbon and relatively low gas prices made coal unprofitable in the first half of the year. In 2022 coal power plant capacity was in high demand and thus the effect was bigger.

➡️Further the interaction with the Market Stability Reserve (MSR) has to be considered . This rule-based mechanism was established to compensate for swings in supply and demand. Relatively lower net emission in 2021 and 2022 therefore also meant that the MSR was stronger than it would have been in a scenario where the plants hadn’t closed. (To further complicate things the cancellation itself might also bring adverse effects with the MSR operations)

➡️The residual effect of the closures thus shrinks down further. We therefore estimate that Germany could cancel 4-14m EUAs worth €0.4-1.4bn from their 2024 allowance auctions.

Big Q is the political viability of (future) cancellations – the impact on the national budget could grow in the future as the MSR will loose grip. The new, ambitious 2030 ETS cap does not leave a lot of room for coal-fired generation anyway and the question is whether future German governments are still willing to avoid a waterbed-effect for the cost of their ETS revenues.


Germany wants to remove allowances from coal phase-out

The coal phase-out has been decided – but it was so far unclear whether the freed-up allowances would be removed.

It is the decisive question for climate action when it comes to the coal phase-out: Will the emission allowances freed up by the coal phase-out be removed from the market? The German Ministry of Economic Affairs wants to remove these allowances from the market. This could cost the German government billions.

Bernhard Pötter

Image of Bernhard Pötter

The emission allowances in the EU Emissions Trading System (ETS) that will be freed up by the planned coal phase-out are to be removed entirely from the market, according to the German Federal Ministry for Economic Affairs and Climate Action (BMWK). This is what a ministry spokesperson told Table.Media. Only with this approach would the coal phase-out in Germany contribute to emission reduction.

Click link above for more — to subscribe

(Earlier updated with post by “Rich Gilmore”, who was apparently wrong on LinkedIn, so I removed)

Leave a Reply