EU Carbon Market Still Oversupplied Despite Economic Recovery

LONDON, April 1, 2011 /PRNewswire/ -- The EU emissions trading system (EU ETS) is still oversupplied, despite emissions rising for the first time since the recession started, fresh data shows.

Companies under the EU ETS pumped out 1,757m tonnes of CO2 in 2010, up around 3% from 2009 but still lower than the total supply of allowances, created by the EU for that year.

The oversupply would have triggered a price crash towards zero if it wasn't for the fact that companies can bank allowances into a later trading phase, starting in 2013.

The data from the European Commission is still preliminary, but only a few plants have not yet submitted their emission reports, indicating the final figure should be similar.

ICIS Heren data shows that EUAs - the traded instrument in the EU ETS - remains at just half the prices they hit in 2008, before the recession struck. EUAs with delivery in December 2011 - the benchmark contract - have closed on average at EUR16.50/tonne of CO2 in March, compared with prices above EUR30.00/tonne of CO2 in mid-2008. "The carbon market was stable on Friday after the data release, showing that companies have already factored in a rise in emissions into prices," Isabel Save, editor of European Daily Carbon Markets, said.

The surplus of EUAs is not evenly distributed across countries and sectors, however. Power producers in the UK were short of 35m EUAs in 2010, while the German power sector faced a shortfall that was double as big. In contrast, steel and cement makers in Europe had 125m EUAs to spare, compared with their free allocation.

Notes for editors

Launched in 2005, the EU ETS works on the cap and trade principle. This means there is a cap, or limit, on the total amount of greenhouse gases that can be emitted by the industrial and power plants in the system. Within this cap, companies receive emission allowances (EUAs) which they can sell to or buy from one another as needed. The limit on the total number of allowances available ensures that they have a value.

At the end of each year each company must surrender enough allowances to cover all its emissions, otherwise heavy fines are imposed. If a company reduces its emissions, it can keep the spare allowances to cover its future needs or else sell them to another company that is short of allowances.

The number of allowances is reduced over time so that total emissions fall. In 2020 emissions will be 21% lower than in 2005.

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    For further information please contact:

    Isabel Save
    ICIS Heren
    t: +44(0)20-7911-1942
    e: isabel.save@icisheren.com

    http://www.icis.com/heren