EUAs Drop on Bloomberg Story, So What is Going On?
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EUAs have dropped sharply this afternoon, with the benchmark Dec-26 contract trading below €80/t, down 4.7% on the day. The market has dropped on a Bloomberg story published at 14:42 CET talking about potential changes that could be made to the EU-ETS in the forthcoming EU-ETS Review that will take place in Q3 of this year. It quotes a senior former European Commission official – Jos Delbeke, who is now retired but still influential in Brussels as an academic and as one of the architects of the EU-ETS – as follows:
“As a short-term measure before the (EU-ETS) reform is agreed, Delbeke said the EU could use around 370 million allowances parked in a buffer reserve to hand them out to companies as support for low-carbon investments.”
We think that what Jos Delbeke is referring to here is the so-called CSCF buffer (the Cross-Sectoral Correction Factor), which is a pool of allowances carved out under the 2021-30 cap under Article 10a5a of the EU-ETS directive. These allowances were intended to be allocated to industry as a top-up in the event that the aggregate number of free allowances proposed by member states first over 2021-25 and then over 2026-30 exceeded the maximum allowed amount of free allowances across the EU as a whole.
Under these circumstances, the Commission was to have applied a uniform CSCF as a way of ensuring that the free allowances allocated did not exceed the maximum permitted amount and to have topped up the number of free allowances from the CSCG buffer. In the end, however, the threshold for triggering the CSCF was not met either for 2021-25 or 2026-30. As a result, those 370m EUAs currently remain unallocated.
The key point in all this, though, is that it was always the case that if the CSCF was ultimately not triggered, those allowances would come back to the market over 2026-30. As a result, those ”around 370m allowances” that Delbeke is referring to in the Bloomberg story should already be in analysts’ supply projections over 2026-30 anyway.
The EU-ETS Review and the MSR Review scheduled for Q3 this year will undoubtedly cause more market-moving headlines in the coming weeks and months, and there are very real substantive issues to be discussed that could change the trajectory over the cap beyond 2030.
However, the pool of allowances held in the CSCF buffer will one way or another come to market over 2026-30 should not come as a surprise to anyone.
