Even though the EIB declares that it does not take any view on EUA’s prices and does not have a price target for the monetisation of the EUAs and the main objective of the monetisation is to minimise any impact on the EUA market it will turn out soon what will be the effects of the whole process on the carbon market.
The above declarations of the EIB are highlighted in a document ‘Update on the NER 300 Initiative 3rd Annual European Emissions Markets Conference’ of 6 October 2011 by Guido Bichisao (the source: http://www.eib.org/infocentre/news/index.htm).
The current market tendency finding its expression in the spate of cheap credits is, however, at risk of intensifying. As follows from the EIB written answer of 17 November 2011 to IETA letter regarding EIB communication on monetisation of NER300 allowances dated 21 October 2011 (the source the same as above), EIB intends to sell the first tranche of 200 million EUAs over 10 months following the delivery thereof by the European Commission. It means that the influx of average of 20 million EUAs a month is imminent in the near future.
An effect of this surge of phase three allowances on market price tendencies would, however, be indirect only given that it is generally possible to use CO2 allowances from the second trading period in the third one, as from 2013 (with the reservation of the particular procedure for exchangeability) – but not conversely. As a consequence, EUAs sold in early auctions starting soon will be barred from compliance use in the second trading period (see: ‘Banking of CO2 allowances operates onwards not backwards’).
But when the monetisation process ads to the current surplus in available phase two CO2 allowances, the present downward trend in CO2 prices could deepen as compliance buyers may plan to satisfy their 2013 emission (and further) needs from forward-sold phase-three EUAs instead of banked surpluses of phase-two units. The demand for second-phase EUS’s may further decrease with impact on the relevant prices.