Early April Emissions Data Disclosure to Soon Impact Market Expectations for the Medium Term
Every year in early April, the European Commission publishes emissions data for all installations participating in EU ETS for the year prior. The results provide the possibility for analysts to not only adjust emissions for the previous year, but also rebase their emission forecasts for coming years.
In the weeks ahead of the data disclosure, emission forecasts are surfacing in the energy media sector. Volue Insight has for years taken part in media polls, and that also goes for this year.
Every year in early April, the European Commission publishes emissions data for all installations participating in EU ETS for the year prior. The result provides the possibility for analysts to not only adjust emissions for the previous year, but also rebase their emission forecasts for coming years.
In the weeks ahead of the data disclosure, emission forecasts are surfacing in energy sector media. Volue Insight has for years taken part in media polls, and that also goes for this year.
With our monitoring of the power sector and industrial development, we see 2022 emissions have been impacted by a marginal gas to hard coal/lignite switch, arising from high gas prices. The energy crisis has harmed industrial output, particularly in Q4 2022. This has lowered industrial emissions considerably. It has also resulted in a strong power demand decrease, which has been offset by weak nuclear and hydropower output.
In late March, our figures showed a total 2022 emission forecast for stationary installations in EU ETS of 1319 Mt, being a decrease of 16 Mt from 2021 (-1.2%). The prognosis comprised a power sector increase of 19 Mt and an industry sector decrease of 35 Mt.
Monday 3rd of April the European Commission published the emissions data. Although this was slightly incomplete, as usual at that time of year, we understand various sources’ findings of the final outcome of the figures to be in the -1.0% to -1.6% range (1314 Mt to 1322 Mt).
Taking this into account, we perceive that for the fourth year in a row, Volue Insight is the consultancy with the highest accuracy*.
We understand that an emission increase was widely expected among many consultancies ahead of the data disclosure. As a consequence, emission assessments for 2022 will be corrected downwards, while this may also have repercussions to the next couple of years, as emission forecasts for those years may have been somewhat anchored to 2022 emissions.
A 40 Mt adjustment for 2022 may in some cases be required, while possibly 30 Mt for 2023, 20 Mt for 2024 and 10 Mt for 2025 could be the result – hence, a decrease in market emission expectations of some 100 Mt totally over 2022-2025 only as a result of the data disclosure could be the result.
This will probably soon be digested in EUA market prices.
We are now also looking at another year with year-on-year emission decreases, but this time much more significant: We expect 2023 emissions for EU ETS+UK to drop by another 115 Mt, going from 1424 Mt in 2022 to 1309 Mt in 2023 (For EU ETS only: Emissions are to drop by 102 Mt, from 1319 Mt in 2022 to 1217 Mt in 2023). This is mainly due to a strong decrease in power sector emissions.
Thermal power generation in EU ETS+UK is in our assessments likely to drop by almost 200 TWh year-on-year. This is mainly a result of power consumption to fall slightly further from 2022, as we are still on the weak consumption trend that cemented in Q4 last year amid struggling industrial output, while we will have record inflow of renewables this year.
A strong decline in 2023 emissions may not be reflected in CO2 market prices yet.
We are currently expecting the Dec-23 EUA price to drop below 80 €/t towards the summer. At time of writing, the Dec-23 EUA price is at 93 €/t.
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