EU carbon dioxide allowance prices under the EU Emissions Trading System fell sharply to a two-month low Friday morning amid signs that the European Commission may be pushing for stronger EU energy efficiency targets in a package of policies to be unveiled next week.
EU Allowance futures contracts for December 2016 delivery on the ICE Futures Europe exchange fell to a two-month low of Eur4.94/mt ($5.23/mt) Friday morning, down 40 euro cent or 7.5% from Thursday's close of Eur5.34/mt.
The EC is expected to unveil a winter package of policies on November 30 that is expected to include eight pieces of new legislation.
EU Climate Action and Energy Commissioner Miguel Arias Canete Thursday said the package may include EU targets to increase energy efficiency by 30% by 2030, up from the currently agreed 27% target.
Without specific measures to account for tougher efficiency targets, any new efficiency policies, if enacted, would be expected to create additional CO2 emissions cuts, weighing on demand for EUAs.
EU leaders have only agreed in principle to increase energy efficiency by at least 27% by 2030 so it remains unclear if any proposed stronger 30% target would gain the political support needed to pass into law.
POST-2020 EU ETS REFORMS
Meanwhile, rumors were in circulation Friday of a potential imminent deal on post-2020 EU ETS reforms, as the EU Parliament's environment committee works on finding agreement on a raft of proposed amendments.
"A deal is on the table; time for serious movement," the EU Parliament's lead lawmaker on the post-2020 reforms, Ian Duncan, said Thursday.
Further meetings of the shadow rapporteurs -- the equivalent representatives from the main political groups in the EU parliament -- are needed next week, Duncan tweeted Thursday.
The committee is expected to vote on the proposed reforms on December 8, although further time may be necessary if there are still outstanding issues on aviation and maritime emissions, according to Brussels sources.
EURELECTRIC BACKS STRONGER REFORMS
European power generators' industry group Eurelectric on Thursday gave its clear backing for stronger measures for the EU ETS after reaching agreement among its board of directors on November 17.
Eurelectric said it wants the Linear Reduction Factor (annual CO2 cap) to be reduced by at least 2.4% after 2020, a stronger measure than the EC's proposed 2.2% per year reduction.
The group also said the Market Stability Reserve -- set to withhold 12% of the surplus of allowances each year starting 2019 -- should be strengthened to withhold 24% of the surplus each year until 2023.
The move, if adopted, would speed up the rate at which surplus allowances are removed from the market, tightening supply and pushing carbon prices higher.
Under the current 12% withdrawal rate, analysts expect the MSR to re-balance the EU ETS some time in the late 2020s, potentially leaving carbon prices in single digits for several more years.
"In the light of the Paris outcome, the EU can make a cost-effective contribution to closing the global emissions gap by taking appropriate measures in the current reform to strengthening the EU ETS in line with the EU's long-term decarbonization objectives and its global commitments," Eurelectric President Antonio Mexia said in a statement.
"An increase in the LRF [Linear Reduction Factor] for Phase IV combined with improved MSR design parameters will be necessary to deliver a meaningful price signal both in the short and longer term," he said.
Eurelectric also said the MSR should be "future-proofed" by lowering the applicable thresholds for withdrawal and release of permits.
The MSR will remove 12% of the surplus starting 2019 if the surplus is above 833 million mt of CO2 equivalent and release 100 million mt/year back into the market if the surplus falls below 400 million mt.
Eurelectric wants those parameters changed to 300 million-600 million mt -- effectively reducing the lower and higher range for the market surplus.
