ECS 2022: Extra 250 Million Carbon Allowances Release Could Undermine Market — OPIS

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BARCELONA – A proposal to release up to 250 million carbon allowances from the EU emissions trading system’s market stability reserve could set a dangerous precedent at the European climate summit on Tuesday.

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European allowances, credits that allow emissions of the equivalent of one metric ton of carbon dioxide during a specified period, could be worth about 20 billion euros ($21.4 billion) in carbon auctions. Speakers said that the proposal to issue large numbers could fundamentally undermine the credibility of the carbon market.

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“The key to the entire MSR system is increasing trust and reliability in the system; without MSR we would have predictable floor prices,” said Ingo Raming, head of carbon markets at Spanish financial services company BBVA.

“The issue now is that people believe auction revenue is used for other things that it should have done, and the market is triggered by that,” said director of carbon research at financial data provider Refinitiv. Hage Fejelheim said.

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The European Commission launched its REPowerEU scheme earlier this year to produce clean energy and diversify supply. An additional investment of EUR210 billion is needed between now and 2027 to eliminate Russian fossil-fuel imports, which currently cost European taxpayers about EUR100 billion, according to a statement on the European Commission’s website.

EU member states can access the new, so-called Recovery and Resilience Facility Grant, funded by the auction of ETS allowances, which are currently in MSR, and are worth EUR20 billion, the statement said.

“If we want to accelerate emissions reductions, we need to finance REPowerEU, as it is our response to an extraordinary geopolitical situation,” said Mette Quinn, deputy director of carbon markets for the European Commission.

“We have done the assessment and we know that we need 250 million allowances for auction to meet the REPowerEU targets. Considering the current situation, the price effect will be muted. Much of the increase in energy prices There’s a big impact, and the cost of carbon is only a small fraction of it,” Quinn said.

However, some participants in the summit remained uncertain.

“MSR is a rules-based mechanism; is it just a one-off and how to ensure that it won’t come back in the near future?” asked Raming.

“The recent announcements from the European Commission are confusing for many of our clients,” said Aymeric de Conde, commercial director of the carbon and renewables business at Vertis Environmental Finance.

“You have ETS and MSR and they are both based on volume and balance. Now the commission adds additional functions and is reversing the flow of allowances in the market,” Conde said. “Many companies are confused and taking a step back and just waiting for the final version of the ETS and REPowerEU legislation.”

The European Climate Summit, organized by the International Emissions Trading Association, runs from 23-25 ​​May in Barcelona.

–Reporting by Benita Driesen, [email protected]; Editing by Rob Sheridan, [email protected]

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