EU ETS MARKET STABILITY RESERVE

Transcription

1 EU ETS MARKET STABILITY RESERVE European Commission expert meeting, Brussels Itamar Orlandi

2 IMPACT ON THE EU ETS BALANCE

3 MSR IMPACT ON EU ETS BALANCE WITHOUT ACCOUNTING FOR FEEDBACK LOOPS (MT) 4,000 3,500 3,000 2,500 2,000 1,500 1, Allowances in circulation with MSR Reserve injections Reserve Allowances in circulation without MSR Reserve returns Source: Bloomberg New Energy Finance 2

4 MSR AND ABATEMENT Increased scarcity Higher prices Lower emissions Hedging reduces available surplus Reserve intervention 3

5 EU ETS PROJECTION WITH MSR (MT) 3,000 2,500 2,000 1,500 1, Abatement Reserve injection EUAs in Reserve circulation injection Reserve Reserve EUAs in EUAs circulation in Hedging circulation Hedging -1, Source: Bloomberg New Energy Finance 4

6 MARKET IMPACT OF MSR BASED ON BNEF MODELLING PROJECTED EUA PRICE DIFFERENCE WITH AND WITHOUT MSR ( /T, NOMINAL) ABATEMENT ( , MT) 60 3, ,500 2, , , , No MSR With MSR Note: Both scenarios assume a hedging requirement of 0.9Gt in 2032.Scenarios modelled with the Bloomberg New Energy Finance MSR. Source: Bloomberg New Energy Finance 5

7 MARKET RESILIENCE

8 RESERVE IN 2030 UNDER DIFFERENT DEMAND SHOCK SCENARIOS (MT) 2,500 2,000 2,099 2,098 2,131 Asymmetric impact Impact of hedging prevents reaction to positive demand shock 1,500 1,000 Scale Size of reaction depends on surplus, not shock No shock Positive shock Negative shock Time lag May exacerbate short/medium-term volatility Note: Positive and negative demand shocks assume an event with a similar impact on yoy emissions changes as the 2008 recession occurring in 2025 Source: Bloomberg New Energy Finance 7

9 THE FUTURE OF THE RESERVE Overachieving the target Reaching 2030 with a full reserve means the EU ETS is subject to a tighter target Policy risk of reserve Large reserve + high EUA prices = invitation for potential pressure for more intervention? Credibility How will market participants think about the reserve and potential returns? Source: Bloomberg New Energy Finance 8

10 FOUR THINGS TO KNOW ABOUT THE MSR Impact on EU ETS Fundamental change to market dynamics not a small correction Defining the aim: surplus or stability? Aiming at two birds with one stone gives both birds a chance Long ramp-up period Surplus expected to be eliminated only in mid-2020s Risk of permanent reserve Return of volume unlikely to be triggered due to hedging Source: Bloomberg New Energy Finance 9

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