European Parliament is to vote on carbon-market rescue plan on 3rd July /We expect the plan will PROBABLY BE APPROVED BUT WITHOUT ANY MEANINGFUL IMPACT ON CO2 CREDIT PRICES in our view.
A panel of European Union lawmakers approved a rescue plan for EU ETS on 19th July. A compromise allows carbon-market intervention as one-time move and urges earmarking 900 mln. of the delayed allowances for a fund to finance development of clean technologies and allowances should be reintroduced one year after being withheld. European Parliament is to vote on carbon-market rescue plan on Wednesday, 3rd July. The commission, the EU’s regulatory arm, originally proposed postponing 900 mln. permits in the three years through 2015 and returning them in 2019-2020 (which had been rejected by EP on 16th of April).
Majority of the market seems to be expecting an approval of the CO2 backloading plan this time on Wednesday. On the other hand, we do not expect that the short-term delay of 900 mln. permits in auctions could remove an oversupply of allowances when the most of analyses are mentioning that a permanent removal of 1.5-2 bln. permits is needed to fix the EU ETS market.
Therefore, we see just a little upside for CO2 prices (max. additional 1-2 EUR) as well as for a low carbon intensive generators such as nuclear, wind and hydro, as Fortum, Verbund, CEZ, E.ON, GDF Suez with the approval of the rescue plan by the Parliament on Wednesday. On the other hand, there may be – less probable but – a significant downside risk in case of „no vote“ or the rejection of the plan as this is probably a last chance for backloading ideas as EP elections next year practically means a very signigficant delaying of the process and CO2 permit prices could fall close to zero in this case. /
SHORT-TERM RECOMMENDATION: Prefer RWE over E.ON (as well as over CEZ, Fortum, Verbund) if the plan is rejected by EP.