The Carbon Market 20.11.2019

The EU Tightens EU ETS Free Allocation Rules

The European Commission adopted regulations that will allow it to amend the volume of EU emissions trading system (ETS) allowances that an installation receives for free, in response to changes in that installation’s activity. The rules will apply during the carbon market’s fourth trading phase, from 2021-30.

Under the revised EU ETS directive, the main piece of legislation covering the carbon market, the EU can adjust an installation’s free allocation when its operations decrease or increase by more than 15%. The new rules adopted allow for further adjustments to free allocation, after this initial change has taken place.

The aim is to make sure that industrial firms only receive the amount of free carbon credits they need to cover their actual emissions. In particular, it aims to avoid windfall profits, whereby firms receive more free allowances than they need and sell the spare permits to generate cash.

The EU may consider further changes to free allocation in the 2020s, if the bloc sets a more ambitious emissions reduction target for 2030 — an aim supported by the president-elect of the incoming commission. Ursula von der Leyen is also considering an EU-wide carbon border tax policy, a move that is likely to see industrial firms lose their free allocation in the carbon market.

The EUA Price

The ICE ECX exchange from London closed yesterday, 19.11.2019, at 23.44 Eur/EUA. The ccarbon price decreased with at least 1 Euro in the last week because of bearish reactions to a lack of firm EUA cancellation plans in Germany’s coal phaseout bill triggered selling.

Germany will next year begin the process of phasing out its hard coal-fired power plants, according to draft legislation, with a decision on cancelling a corresponding number of EUAs appearing to be postponed until at least 2022.

Source: AitherCO2 and Point Carbon, London

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