Newsletter CO2
2011 Carbon Market Retrospective
2011 was a difficult year for both investors and companies in the EU-ETS (European Union Emissions Trading Scheme). Investors’ confidence in the CO2 market was strongly shaken as a result of multiple factors that lead to lower carbon prices. The importance of the EU-ETS as the main instrument for tackling the climate change is often questioned due to recent market developments and international negotiations results.
To this aim we identified the most important factors that influenced and still influences the carbon price in 2011 and 2012:
1. Deteriorating economic situation in the euro area has a strong effect on the EU ETS;
2. Analysts forecast EUA price for 2012 and 2013 was reduced on average by 45% compared to March 2011;
3. The Unique European Registry will be operational just in the second half of 2012;
4. Failure to agree strict emissions targets in the European Union, divisions within the EU regarding carbon market legislation;
5. The European Commission proposal on the Energy Efficiency Directive that will be voted in the European Parliament in April 2012 with over 1800 amendments, including the withdrawal of 1.4 billion carbon allowances from the market;
6. Plan to bid 300 million EUAs from the NIR (New Entrants Reserve) before 2013 through the European Investment Bank;
7. Mistrust about the integrity and the security of contracts in the market due to many cases of theft and cyber fraud;
8. European Commission proposal in November 2011 on MiFID (Market in Financial Instruments Directive) to include carbon certificates of the spot market in financial instruments category in response to theft and fraud problems which repeatedly shook confidence in the EU-ETS;
9. From the 1st of January 2012, beginning of the carbon trade in the aviation sector, with strong opposition manifested by airlines from the United State and China;
10. Minor achievements in the United Nations Conference on Climate Change in Durban in December 2011. Although it was decided to continue the Kyoto Protocol and its mechanisms CDM (Clean Development Mechanism) and JI (Joint Implementation) by 2017 or 2020, there is a need for a new legally binding international agreement that would be theoretically signed in 2015 and in which all nations will assume emissions reductions targets after 2020. Ironically, this agreement should have been already signed in December 2009 in Copenhagen.
However, recent data published by Point Carbon News showed that 2011 carbon exchanges volumes in Europe for both spot and futures contracts increased by 25% compared to 2010, which means that the market functions according to supply and demand rules influenced by economic, politics and policies factors at regional and international levels.
2012 is the last year of the Second Phase of the EU-ETS which began in 2008. From the 1st of January 2013, we will enter in the Third Phase of the EU-ETS with exceptional free allocations, which leads to important financial burdens for companies. KDF Energy aims to become your partner in energy and carbon efficiency activities in order to help companies to overcome difficulties of this year.
