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EU Carbon Benchmarks May Boost Prices, New Energy Says (Update1)
2010-10-06 12:37:30.698 GMT
(Adds New Energy comment in sixth paragraph.)
By Mathew Carr and Ewa Krukowska
Oct. 6 (Bloomberg) -- A European Union plan to use so-
called benchmarks to limit the distribution of free carbon-
dioxide allowances may put "upward pressure" on prices,
according to Bloomberg New Energy Finance.
The preliminary proposal, disclosed yesterday in a draft
from the EU regulator, doesn't affect the overall cap for the
eight-year period ending in 2020, said Konrad Hanschmidt, a
London-based analyst at New Energy Finance.
"The most important impact on the market will be
psychological in terms of the selling behavior of industrial
players," Hanschmidt said. "The majority will see the
tightness of the draft benchmarks as an additional reason to
hold onto their volume, providing upward pressure on prices."
The European Commission is seeking to introduce so-called
benchmarks in 2013 to assign the dwindling supply of free
emission permits to industries such as oil refining and metals
production. The commission, the EU regulator, has said it aims
to reward the most-efficient emitters, and its draft paves the
way for phasing out free allowances in the European trading
system, the world's largest carbon market.
The benchmarks set the amount of C02 emissions that can be
produced to make a ton of products ranging from glass and bricks
to diesel at the most efficient plants.
In the steel industry, the draft document assumes a
benchmark for hot metal at 1.065 tons of carbon dioxide per ton
of product, compared with an indicative benchmark of 1.286 tons
in a 2008 study published on the commission website, New
Energy's Hanschmidt said in his note.
'Most Efficient Use'
"The proposed benchmark is assumed to exclude a significant
amount of waste-heat production," he said. "This would
motivate steel producers to find the most efficient use for
their waste-gas production, for example for power production in
a plant nearby."
The benchmarking rules may be subject to further changes
before the commission approves them and presents the regulation
to the EU's 27 member states.
"The commission hasn't finished work on the regulation,"
Maria Kokkonen, an EU climate spokeswoman, said yesterday in
Brussels. "It's in internal consultation."
EU Permits Rise
EU allowances for December 2010 delivery fell 0.3 percent
to 15.54 euros ($21.52) a metric ton as of 1:32 a.m. on London's
European Climate Exchange. Permits have jumped 24 percent this
year as utilities increased purchases amid evidence global
economic growth is accelerating following the recession.
The EU is seeking to balance the goal of reducing
allowances in its carbon-trading market with limiting cost
increases for energy-intensive industries. Refiners and other
companies that face higher costs have sought to persuade the EU
to put off plans to scale back free allowances for less-
efficient plants to later this decade.
The 27 EU nations approved plans in 2008 to auction rather
than give away most EU allowances in phase three, which runs
from 2013 to 2020. The bloc will auction about 60 percent of the
total number of permits in 2013, according to the commission
estimates, and the proportion will increase in later years.
The proposed regulation aims to determine the allocation of
about 6 billion free allowances in the eight years through 2020.
The benchmarks, based on the average performance of the top 10
percentile of installations in 2007-2008, will help determine
how many permits emitters get for free in phase three.
Historical Emissions
The baseline period for calculating median historical
production levels will be either 2005 to 2010 or 2009 to 2010,
whichever is higher, according to the draft.
The best installations in any given industry won't need to
purchase more allowances, while those that emit more than the
benchmarks will need to buy permits on the market, Hans Bergman,
a specialist at the commission's climate unit, said last month.
The EU agreed to give a larger share of free permits to 164
manufacturing industries last year. The "carbon leakage"
protections included in phase three of the cap-and-trade
program, which runs from 2013 to 2020, are designed to prevent
EU companies from shifting operations to less-regulated regions.
Manufacturers that aren't listed will receive 80 percent of
benchmarked allowances for free in 2013 and face an annual
decline in that share to 30 percent in 2020, while most
utilities will face 100 percent auctioning as of 2013.
Following are some of the benchmarks proposed in the draft
regulation:
*T*
Product benchmark Carbon leakage exposure Benchmark value
(allowances/T)
Coke YES 0.069
Sintered ore YES 0.172
Hot metal YES 1.065
Aluminium YES 1.514
Grey cement clinker YES 0.716
White cement clinker YES 0.896
Lime YES 0.954
Float glass YES 0.453
Facing bricks NO 0.139
Roof tiles NO 0.144
Plaster NO 0.048
Recovered paper YES 0.039
Newsprint YES 0.298
Uncoated fine paper YES 0.318
Uncoated carton board YES 0.237
Nitric acid YES 0.224
Phenol/acetone YES 0.266
Soda ash YES 0.843
Refinery products YES 0.0295 (CWT)
EAF carbon steel YES 0.285
EAF high alloy steel YES 0.357
Iron casting YES 0.325
Ammonia YES 1.612
Aromatics YES 0.0295 (CWT)
Hydrogen YES 8.85
*T*
For Related News and Information:
Emission market news: NI ENVMARKET <GO>
Today's top energy stories: ETOP <GO>
European power-markets home page: EPWR <GO>
--With assistance from Randall Hackley. Editors: Justin
Carrigan, Mike Anderson.
To contact the reporters on this story:
Mathew Carr in London at +44-20-7073-3531 or
m.carr@bloomberg.net;
Ewa Krukowska in Brussels at +32-2-237-4331 or
ekrukowska@bloomberg.net
To contact the editor responsible for this story:
Stephen Voss at +44-20-7073-3520 or
sev@bloomberg.net
