Early MSR start better for EU government coffers -analysts

Published 15:41 on April 27, 2015  /  Last updated at 15:48 on April 27, 2015  /  EMEA, EU ETS  /  No Comments

An early start for the MSR will boost EUA prices and allow EU governments to raise more than €151 billion through allowance sales over the next 10 years, making it by far the most financially lucrative of the options currently being weighed by lawmakers, analysts said on Monday.

An early start for the MSR will boost EUA prices and allow EU governments to raise more than €151 billion through allowance sales over the next 10 years, making it by far the most financially lucrative of the options currently being weighed by lawmakers, analysts said on Monday.

Thomson Reuters Point Carbon said a late-2018 start to the proposed EU ETS supply control mechanism, a date backed by the EU Parliament’s environment committee and some nations, would increase carbon prices sooner and raise more cash than would the later starts supported by EU member states and the European Commission.

The Council, at a meeting last month, reached a common position backing a 2021 start, but western European governments are said to be unhappy with this date. The Council, like Parliament but unlike the Commission, has also backed putting the 900 million backloaded EUAs into the reserve at the end of the current trading phase.

The analysts found that EUA prices would average €18.30 between 2015 and 2025 if Parliament’s position was enacted, compared to the €16.20 estimated under the EU Council’s mandate, and far lower under the Commission’s plan. In contrast, front-year prices were trading around €7.30 on Monday.

“Reforming the ETS earlier than 2021 will allow the EU to leverage its price on carbon to bring about significant cost-effective emission reductions, and lower the overall cost of its climate objectives,” said Point Carbon analyst Emil Dimantchev.

The Commission initially proposed a 2021 date, but sources said it last week informally proposed to EU presidency holder Latvia that the mechanism start in 2019, a view the sources said had since been adopted by Latvia in an effort to find compromise amongst the east and west camps.

Neither the Commission nor Latvia would confirm this.

The analysts said EUA sales under an MSR based on the Council’s position would raise an estimated €134.5 billion over the next 10 years, and less than €110 billion under the Commission’s plan.

A 2018 start would also lead to additional emissions cuts of 150 million tonnes under the EU ETS by 2025 versus a 2021 MSR start, the analysts added.

EU governments would raise an average 13% more money under a 2018 start compared to the Council’s position, with Portugal and Hungary seen as faring the best in percentage terms.

By Mike Szabo – mike@carbon-pulse.com

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