"While more supply is actually bearish, the commission
will be able to adjust the market impact by releasing
potentially less forward auctioning volume," Hanschmidt said.
"In any case by using the combination of NER300 selling and
forward auction they will be in a good position to ensure a
smooth price transition to the third phase."
+------------------------------------------------------------------------------+
EU to Sell 300 Million CO2 Permits by End-'12 for Aid (Update1)
2010-11-09 14:13:28.437 GMT
(Updates with average annual quota in second paragraph.)
By Ewa Krukowska and Jonathan Stearns
Nov. 9 (Bloomberg) -- The European Union said it will sell
300 million carbon-dioxide permits by the end of 2012 from a
reserve to spur clean-energy projects and vowed to "minimize"
the impact of the sales on market prices.
The European Investment Bank will sell the 4.3 billion
euros ($6 billion) of CO2 allowances from the post-2012 reserve
for new companies in the EU emissions-trading system and
disburse the revenue via national governments to aid projects
for carbon capture and storage and renewable energy. The volume
to be sold is about 15 percent of an average annual quota in the
current five-year trading period that started in 2008.
The EIB is the 27-nation EU's lending arm and the 300
million permits from the so-called new entrants' reserve are
known as the NER300. The EU cap-and-trade system, designed to
fight climate change, started in 2005 with a three-year trading
period, is now in a second phase that ends in 2012 and will
enter a third stage from 2013 through 2020.
"While details, including the starting date of the sales,
are not fixed yet, it is expected that all NER300 allowances
will be sold before the start of the third trading period of the
EU emissions-trading system in January 2013," the European
Commission, the bloc's regulatory arm, said in a statement today
in Brussels.
Renewable-Energy Projects
The EU decided in 2008 that revenue from the sale of the
allowances would be used to aid carbon-capture and renewable-
energy projects. In a related step today, the EU opened a
contest for the first portion of the aid from the reserve. The
announcement covers 200 million of the CO2 permits and companies
have three months to submit bids.
EU carbon allowances for December 2010 traded 0.4 percent
up at 14.30 euros a metric ton as of 1:51 p.m. in London,
compared with an intra-day high of 14.33 euros. They have gained
almost 14 percent this year on signals the region's economy is
recovering from the recession.
The permits to be sold by the EIB will probably be the
first allowances for the next trading period brought to the
market. Power producers have said they need phase-three permits
immediately to hedge their future electricity sales.
The planned sales of permits to raise funds for emission
abatement projects are higher than expected, said Konrad
Hanschmidt, an analyst at Bloomberg New Energy Finance. New
Energy Finance had earlier forecast that 100 million of the 300
million allowances would be held back and sold in 2013,
Hanschmidt said by telephone.
Market Impact
"While more supply is actually bearish, the commission
will be able to adjust the market impact by releasing
potentially less forward auctioning volume," Hanschmidt said.
"In any case by using the combination of NER300 selling and
forward auction they will be in a good position to ensure a
smooth price transition to the third phase."
The EU cap-and-trade program, the world's largest, imposes
CO2 quotas on around 12,000 power plants and factories. The
overall supply of allowances over the periods is diminishing,
and the EU is moving toward the general auctioning of permits
now granted largely for free to fill the CO2 quotas.
The average annual cap in the trading period from 2008
through 2012, agreed before the recession eroded energy demand,
is just above 2 billion tons and the ceiling will be 11 percent
tighter in 2013-2020 on the basis of installations currently in
the system. Including aluminum and chemical makers that join the
program in 2013, the limit for that year was set at 2.04 billion
tons. A further adjustment is planned for airlines from 2012.
Over-the-Counter Transactions
The EIB can sell the allowances through auctions, on an
exchange or in over-the-counter transactions, and it will aim to
"minimize" any impact on the secondary market, the EU said.
"The EIB will sell the allowances by spreading the volumes
as evenly as possible over the selling period," it said. "The
bank will ensure that sale prices do not deviate significantly
from the relevant secondary market prices."
As sales are due to start within a month of the allowances
being made available in a registry account, the permits probably
won't be brought to the market before the fourth quarter of
2011, according to Tschach Solutions GmbH, the Karlsruhe,
Germany-based provider of carbon-market analysis.
"The decision is fundamentally bullish for 2011 because I
hardly see any technical possibility that those permits will be
sold in the first half of next year; the registry is simply not
ready yet," said managing director Ingo Tschach. "Then in 2012
we will see a bigger demand from utilities for hedging."
Phase-Three Permits
European electricity industry association Eurelectric said
in April the EU should auction as many as 500 million phase-
three permits, including 200 million from the new entrants'
reserve, before the start of the next trading period.
West European utilities including RWE AG and E.ON AG will
get no more free permits in the third phase, while east European
power plants will have to buy 30 percent of their permits at
auctions, with the amount rising to 100 percent in 2020.
The commission will probably start discussions with member
states later this year about the timing and volume of early
auctions for carbon allowances in the third trading period. Jos
Delbeke, director general for climate at the commission, said in
April the EU may sell 100 million tons of phase-three allowances
in 2012 "to demonstrate the system is working" and alleviate
uncertainty about the process.
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>
Economic indicator watch: ECOW EU <GO>
Bloomberg columns: NI COLUMNS <GO>
European economic coverage: TNI ECO EU <GO>
Global statistics: STAT <GO>
--With assistance from Mathew Carr in London. Editor: Jones
Hayden, Peter Chapman
To contact the reporters on this story:
Ewa Krukowska in Brussels at +32-2-237-4331 or
ekrukowska@bloomberg.net;
Jonathan Stearns in Brussels at +32-2-285-4300 or
jstearns2@bloomberg.net.
To contact the editors responsible for this story:
Stephen Voss at +44-20-7073-3520 or sev@bloomberg.net;
James Hertling at +33-1-5365-5075 or jhertling@bloomberg.net.
