European Carbon Prices to Double by End of 2015 Following Back-loading Implementation

LONDON, January 8, 2014 /PRNewswire/ --

Today's positive vote in the Climate Change Committee (CCC) on the EU Commission´s proposal to change the Auction Regulation constitutes the final legislative step to implement back-loading.

Back-Loading

Back-loading refers to the short-term measure initiated by the EU Commission aiming to curtail the auction volumes by 900m EUAs in the years 2014-2016 and re-insert those at a later stage in the third trading period (2019-2020). Today's vote by the member state representatives in the CCC approved an amendment to the Auction Regulation specifying the back-loading implementation volume and timing.

This amendment is now subject to a scrutiny period by the EU Parliament and the EU Council, which can both object to the adopted piece of legislation. While the scrutiny period is in theory three months, it is also possible from a procedural perspective to shorten this period. As a result, a fixed starting date for the implementation of back-loading has yet to be set.

Market Impact

From a purely fundamental analysis perspective, the market impact of back-loading should in theory be zero as the market is oversupplied on a cumulative basis by over 2bn EUAs at the end of 2013, mainly from free allocation volumes from the second trading period (2008-2012). As the 900m EUAs will only be temporarily withheld, an efficient market should in principle balance out the gap with the existing oversupply, which is more than enough to offset the back-loaded volumes.

From a timing and trading behaviour-based perspective, ICIS EU ETS analysts expect back-loading to have a significant impact on European carbon prices. The rationale for this is that carbon markets are not efficient and are for the main part not driven by fundamentals but rather by the trading behaviour of market participants and the timing of supply and demand - namely when the short and long carbon positions of compliance players are traded.

The ICIS Timing Impact Model (TIM), which incorporates the trading behaviour of compliance players, shows that the EU carbon market will be temporarily short due to the back-loaded volumes as only a small share of the oversupply built up in the second trading period will be available to offset the withheld auction volumes.

Furthermore, ICIS analysts expect European carbon prices to increase to double-digit figures by 2015 with a steady increase from the start of back-loading onwards.

Tschach Solution's Acquisition

ICIS acquired German carbon market analysis firm Tschach Solutions in July 2013 to benefit from its wide expertise and superior market intelligence in the carbon market.

Founded in 2010 and based in Karlsruhe, Germany, Tschach has a strong industry reputation in carbon market analysis. Tschach's core offering is its extensive, high-quality data and estimates on all relevant areas of emissions trading, power markets and clean development mechanisms in the EU in relation to buying and selling carbon credits.

Standing out from its competitors, Tschach uses a unique Timing Impact Model in its data which shows the historical and forecasted behaviour of market participants' impacts on carbon credit prices.

About ICIS

ICIS is the world's largest petrochemical market information provider and has fast-growing energy and fertilizer divisions. Our aim is to give companies in global commodities markets a competitive advantage by delivering trusted pricing data, high-value news, analysis and independent consulting, enabling our customers to make better-informed trading and planning decisions. We have more than 30 years' experience in providing pricing information, news, analysis and consulting to buyers, sellers and analysts.

With a global staff of more than 800, ICIS has employees based in Houston, Washington, New York, London, Montpellier, Dusseldorf, Milan, Mumbai, Singapore, Guangzhou, Beijing, Shanghai, Yantai, Tokyo and Perth. ICIS is a division of Reed Business Information, part of Reed Elsevier Plc.

About Reed Business Information

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Jacqueline Savory
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SOURCE ICIS