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EUAs performing well

Updated: Jun 16, 2022

After last week's failed Fit for 55 vote concerning a tighter ETS, prices are on the rise again. This is showing a different direction than other markets, including stocks, crypto and the voluntary off-set carbon market (which all dropped precipitously).

This has two reasons:

  1. The three largest parties in the European Parliament have sealed a provisional deal on the EU ETS reform late Tuesday that would see an earlier phaseout of free allowances and a slightly tighter annual cap cut than at last week's failed vote.

  2. Spiking gas prices: North Stream 1 is facing maintenance problems and will therefore deliver 40% under its designed capacity.

The provisional deal includes a 2027-32 phaseout of free allowances to industry that are facing international competition ("level playing field") and an additional provision that 50% of free allowances are scrapped by 2030, sources say. Obviously the to be instated Carbon Border Adjustment is replacing this level playing field mechanism to protect our industry against unfair competition of countries that do not tax carbon emissions.

With regards to the tighter annual cap, the new proposal is to increase the market’s linear reduction factor (LRF) to 4.4% in 2024, 4.5% in 2026 and 4.6% in 2029, according to a source close to the negotiating teams. This compares to 2.2% today. It's also more ambitious than the initial ENVI proposal of a yearly tightening of 4.2%.

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