The 30th April deadline to comply with the EU ETS is fast approaching. This means that companies across the whole of Europe must ensure that they don’t get caught out by a €100 per tonne penalty for failing to follow the procedural steps.The most important deadlines are:
31st March – the deadline for verified emissions reporting and sign off within the EU registry system. Most companies will have a good idea of their emissions by year end and by now the majority of companies will be in a position to sign off their verified emissions. Missing the deadline will result in your registry account being blocked from 1st April. No processes may be initiated from blocked accounts, except surrendering allowances, entering verified emissions, and updating your account details.
30th April – the deadline for surrendering EUAs equal in number to the tonnes of CO2 verified by 31st March. BEWARE! 30th April is a Sunday and transfers of EUAs can only take place on a working day. So in reality the effective deadline for surrendering allowances is in fact the 28th April at 16:00h (CEST).
Other decisions that need to be made:
Buy a shortfall of allowances now? The current market price is hovering around the average price of 2016 so represents reasonable value for money. However, leading analysts including our independent price forecast partners Energy Aspects, are forecasting lower prices over the course of 2017 and into 2018. Is now the right time to buy? Should you borrow allowances recently allocated for 2017 emissions instead?
Buy everything in one transaction? Should you buy everything in one go or spread purchases over a week, a month or a year? It is possible to be lucky in emissions trading and pick the day that allowances hit their lowest point or to be unlucky and achieve the opposite. Last year the price jumped right at the compliance deadline which gave a few buyers a headache. A carefully planned purchase programme avoids leaving the timing to luck.
Do you have both an Account Representative (AR) and an Additional Account Representative (AAR) in place? You’ll need both to make a transfer for year-end compliance. Not a problem for seasoned EU ETS professionals but new entrants and those with staff turnover need to make sure they are ready to go.
Getting a new account representative at short notice is not a simple matter and every year companies get caught out.
As the deadline approaches and passes, there are 2 more things to not forget:
It takes 26 hours to make a delivery from a trading account to an untrusted operator holding account, longer between 2 untrusted operator holding accounts. So, the 28th April deadline mentioned above should really be 26th April or possibly even earlier. Make sure you are well prepared in advance.
Every installation must submit an improvement report that notifies the national regulator of any changes to the installation and the scope for efficiency improvements. The deadline for this report is 30th June each year.
The EU ETS is changing, the Market Stability Reserve starts in 2019 and is expected to sharply increase prices when it starts to materially affect the supply available to the market. Recent political developments make price rises a near certainty. This will coincide with a time when more EU ETS installations are having to buy than ever before. 2018 will be the first year when there are more installations needing to buy than there are installations with an excess of EUAs banked from earlier years and phases. In Phase IV, free allocations will drop further as the EU heads for a collective 40% CO2 reduction by 2030 (the sectors covered by the EU ETS are actually required to reduce emissions by 43%….)
These changes mean higher prices and lower free allocation. When combined the financial impact will be both large and sudden for many companies. A thorough understanding of longer term financial carbon risk is becoming increasingly important. From what we’ve seen of the impact it will have, we would argue it is essential.
First things first
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