Thursday’s landslide UK election victory for the Conservative Party has removed some of the Brexit uncertainty facing the EUA and global markets. Following the victory, the British Pound surged to a three-and-a-half year high against the Euro and stock markets also climbed as the threat of no-deal was removed. However, whilst EUAs initially followed the markets higher, those gains have now been reversed and storm clouds continue to gather over the EUA market as we head into 2020.
The implications of the UK election for the EUA market are threefold:
- The large downside price risk associated with a no-deal Brexit is averted, as the Conservative Party plan to honour the most recently negotiated withdrawal agreement
- UK installations will now be required to comply with the EU ETS for 2019 and 2020 emissions, although the exact mechanism to comply with the latter, considering that the UK is expected to leave the EU by 31st December 2020, is yet to be fully agreed.
- The UK auctions can be expected to resume early in Q1 2020 which will result in both 2019’s and 2020’s auction volumes sold at the same time.