The price of emissions allowances in 2008 was negatively impacted by massive redundancies and production cuts across manufacturing industries in Europe. The EUA price tumbled from euro 22.5 in August 2008 to euro 15 in December 2008. The price of coal also dropped significantly, from euro 18.5 to euro 8 per MWatt during the same period. When coal prices decline, power plants often switch from gas to coal. Since coal produces the highest emissions output, the price of the EUA was expected to rise as the price of coal fell. This however, was not the case. In fact, the EUA price fell below euro 10 in the first months of 2009 following shrinking levels of production output that resulted from the economic crisis.
The negative impact of the economic slowdown on the industry had at least one positive effect - since fewer emissions were produced, Europe was able to get closer to its carbon reduction target. This situation, however, is expected to reverse once the economy picks up. Therefore, a smart move for many carbon emitters is to try investing in abatement technologies early on in order to minimise the impact of tighter regulations and higher carbon prices during Phase III.
"The current situation is giving high polluting industries an opportunity to cash in by selling their excess allowances allocated for Phase II. This could provide funds for investment in emissions reducing technologies when other companies try to save cash to shore up their balance sheets," says Zeinegul Hassan, Research Analyst, Renewable Energy, Frost & Sullivan. "Companies exceeding their emissions targets can benefit from buying allowances at a lower price in 2009-2010 and invest funds they did not spend on allowances into abatement technologies. With smart investments, industrial companies will be well prepared for 2013, when more allowances are to be auctioned."
According to an exemption set by the EU leaders, industries exposed to a significant risk of losing competition within the EU will be granted 100% of emissions allowances free in Phase III. Companies hoping to apply for free permits will need to demonstrate that they have deployed the best available technology. This means that only those enterprises that have invested in abatement technologies will get a chance to receive free permits, and the rest will be required to pay for the right to emit carbon dioxide.
"The competitive landscape in the equipment manufacturing may well change once this crisis recedes. The winners will be those whose R&D activities have not been suspended and who have continued to develop pollution reduction technologies," continues Zeinegul Hassan. "When the EUA price was at its lowest level of below euro 1 in early 2008, the market lacked the incentives to clean up its carbon act. The forthcoming Phase III has raised concerns amongst companies over the costs and competitiveness implications, but at least there is still time and the incentive to develop a plan to reduce their emissions."
