“Perception is reality”: panellists debate price effects of EU’s MSR

Published 17:35 on October 13, 2015  /  Last updated at 08:51 on October 14, 2015  /  EMEA, EU ETS  /  No Comments

Views are mixed as to whether the EU’s Market Stability Reserve will raise carbon prices in the ETS, according to a panel representing the private and public sectors.

Views are mixed as to whether the EU’s Market Stability Reserve will raise carbon prices in the ETS, according to a panel representing the private and public sectors.

Below are some select statements and arguments made by panellists on Tuesday at Bloomberg New Energy Finance’s The Future of Energy Summit in London:

Benedikt von Butler, a carbon and biomass trader with Swiss trading house Mercuria:

  • “Perception is reality … As an industrial, if everyone says prices will go up then I won’t sell now, and as an investor if everyone says prices will go up then I’ll buy now.”
  • “We’re bullish that prices will go up … We will have an effect from the MSR even before it (starts in Jan. 2019), and it’s only a matter of time before we start seeing that effect.”
  • “With current fuel-switching levels, an EUA price between €8 and €25 will lead to no real reductions from utilities, so the only selling you’re going to see is by industrials.”
  • “There are not too many big traders left … so there is less sponge (buying) than there used to be.”

Damien Morris, head of policy at climate campaigners Sandbag:

  • “While the MSR is a step in right direction, we fear it will struggle to keep pace with level of abatement happening on the ground … making it too little, too late in some respects.”
  • “We’ve already seen emissions for stationary installations in 2014 fall below the emissions cap for 2020.”
  • “We see a really large surplus of 4.4 billion allowances by 2020, with only half of that taken off by MSR.  We expect the MSR will be removing allowances from the market for all of Phase 4 (2021-2030), and will struggle to get supply down and prices up.”
  • “At around 400 million tonnes per year, power sector hedging requirements (through the rest of Phase 3) will be lower than what other analysts are estimating”

Adeline Duterque – head of Foresight Department at French utility Engie:

  • “The (EUA) price will eventually climb, but not before 2025.  We see a €20 average leading to €30 … (and that makes) the marginal abatement curve look like a hockey stick.”
  • “Those prices are probably enough to de-mothball efficient gas-fired power plants but not to incentivise new investment.”
  • “The problem with carbon markets is their volatility.”

Franzjosef Schafhausen – deputy director general, Climate Change Policy at the German Federal Ministry for the Environment:

  • “We weren’t sure of the effect (of the MSR), but our analysis is over next decade supply gets scarcer and scarcer.”
  • “But we have a lot of mechanisms that interact with emissions trading, and the core issue is whether the ETS will deliver what it should deliver.”
  • “There is discussion in Germany over whether emissions trading is enough.  If it’s not, then we’ll have to think about an additional instrument … Additional command and control could happen … but energy suppliers are not so much in favour of more mechanisms.”

By Mike Szabo – mike@carbon-pulse.com

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