A few thoughts on Commission proposal to auction MSR volumes: 1/ it’s approx. revenue neutral, or even negative 2/ it could therefore be a measure to control prices 2/ however, it’s not a done deal 3/ and, if approved, future discretionary uses should be limited #OCTT#EUETS
1/ Would reduce revenues for existing auctions sufficiently to make it revenue neutral. If the true price impact is ~14/t (2x Wednesday’s price move, assuming 50% probability priced in), then at an estimated 1800-2000Mt of auctions over 2023-26 this is worth 25-28 bn EUR. #OCTT
2/ If revenue neutral, that means it primarily reduces the price. This would be scary if the true objective, and would undermine faith in the market. This theory could be confirmed if the EIB, in charge of auctioning, has any ad hoc discretion on the timing of sales. #OCTT#EUETS
2/ However, it’s not a done deal. Needs parliament and member state approval. Both have reasons to object because the former just passed a strong EU ETS reform package, and the latter will see their normal auction revenues (fewer strings attached) decrease. #OCTT#EUETS
2 ctd/ Some member states will love the lower price implications though. #OCTT#EUETS
3/ Risk of future discretionary triggers of more MSR sales should be limited. The wording mentions specific revenue targets, which would be enshrined in the EU ETS Directive. That means similar actions in future would require the lengthy reform process we’re currently in. #OCTT
Addendum: quick estimate of how "effective" the measure would be at being revenue positive. Significant risk of being revenue negative, especially if MSR injections are low #OCTT#EUETS#RePowerEU
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