There is a surplus of emission allowances on the market, European Commission to withdraw 267 million

The European Commission will withdraw a further 267 million emission allowances from trading. Its annual assessment of the number of emission allowances found that there was a surplus on the market. More precisely, 1.11 billion allowances were in circulation during the year. Emission allowances were withdrawn from circulation and placed in the market stability reserve (MSR).

Over the weekend, the emissions trading system underwent its annual assessment of the number of allowances in circulation over the previous annual period. This year, too, the Commission concluded that there was a surplus of allowances in circulation. It therefore decided to withdraw a total of 267 million allowances, around 5 million fewer than in 2023, when 272 million emission allowances were withdrawn into the market stability reserve.

The market stability reserve has been operating since 2019. Its purpose is to regulate the number of emission allowances in circulation. If there is a surplus in circulation, as in 2023, the European Commission withdraws 24 % of their total volume into the reserve. Conversely, in the event of a shortage, an additional volume of allowances is released from the market stability reserve, increasing the number of allowances.

The allowances will be withdrawn from circulation gradually. The full volume of 267 million will be withdrawn from 1 September 2024 until 31 August 2025. Further emission allowances were removed at the beginning of this year, when only 400 million emission allowances were retained in the reserve and the remaining allowances were cancelled. A total of 381 million were cancelled in this way.

Emission allowances have been withdrawn from the market regularly over the previous five years, despite a relatively significant increase in their prices. Price growth has therefore never been driven by a shortage of emission allowances in circulation, at least according to the European Commission's view.

Emission allowance prices hover around EUR 75, analysts expect growth

The price of an emission allowance has begun to recover after falling to EUR 52 per tonne of CO2 in February and is now hovering around EUR 75. On Monday, the price briefly rose (along with the price of natural gas) to nearly EUR 78 per tonne. During the day, it gradually returned to slightly below EUR 75.

Analysts broadly agree that despite current fluctuations and short-term risks, the price of allowances should rise in the future. The reason is the repeated tightening of emissions limits, which the European Commission achieves, among other means, through the EU ETS.