Provisional figures (to be confirmed in May) released by the European Commission indicate that in 2009 the recession caused emissions from industrial plants included in the EU's emissions trading system (ETS) to fall by 11%. Combined with a too-generous starting point this meant that overall, the EU handed out more free carbon allowances than were actually needed for plants to comply with their 2009 emissions limits. Even though some plants still faced a shortfall in 2009, this total is smaller than the surplus held by others in the system.
The result is that most plants could earn money by selling the surplus allowances given to them free by the European Union. The EU distributes free carbon allowances to all plants included in the ETS at the start of the year, the number of allowances each plant receives being based on its emissions record. Steel and cement-makers posted the largest surplus, after their emissions dropped by 20-30%.
UK and German plants are among the few that received fewer carbon allowances than they needed to comply with their ETS cap. UK companies face a 15 million credit shortfall, which would cost them around r200m at current spot carbon prices.
If all plants immediately sold off their surplus, the carbon price in the ETS would crash to virtually zero, but is being held up by hoarding. ‘The only thing keeping carbon prices from crashing to zero is the fact that plants can bank their emissions allowances to use later on, when emissions should start rising again because of tighter emission caps and an economic recovery.’ That is the opinion of Isabel Save of energy information provider ICIS Heren. Plants can bank allowances until at least 2020, when the third trading period of the EU ETS ends. ‘On a country-basis, the flow of money in the ETS will go from plants in the UK and Germany, which are short overall, to countries like Italy, Hungary and Poland, which are long overall,’ said Ms Save.
Carbon prices have been stable recently at around r13.00 (per carbon credit), and remained so on publication by the EU of the first preliminary data on 2009 emissions in the ETS. Many power generators were still slightly short of EUAs in 2009 and
expect to become even shorter over the next years, as emissions start to rise again. They are buying carbon allowances in the market to cover this.
At the same time, industrial plants are holding on to their carbon allowance surplus, both to cover their own future emissions caps and to sell at higher prices once the recession is over.
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