Dear Sir or Madam,
Last Friday, the European Commission’s reform proposals for the European Union Emissions Trading System (EU ETS1) were announced.
The aim of the reform is to strengthen emissions trading as the European Union’s key climate protection instrument and to align it with the European climate target for 2040 and Europe’s climate neutrality by 2050 at the latest. At the same time, the reform aims to create additional flexibility for industrial transformation in Europe.
Specifically, the European Commission proposes to make more allowances available at auction from 2031 onwards. Previously, the plan was to reduce the quantity of allowances linearly by 4.3 per cent annually until 2027 and by 4.4 per cent from 2028 onwards. In future, the reduction is to be less steep. Under the reform proposals, it is to be 3.7 per cent from 2031 to 2035 and 1.7 per cent from 2036 to 2040.
The free allocation of emission allowances to high-emitting industrial sectors is to be extended until 2038, and the transfer to the market stability reserve through a reduction in auction volumes has been cut from 24 per cent to 12 per cent.
The Commission therefore considers itself to remain on track to achieve the EU’s climate target: greenhouse gas emissions are to be reduced by 90 per cent by 2040 compared with 1990 levels, and the EU continues to aim for net-zero emissions by 2050.
In addition, waste-to-energy plants are also to be required to participate in the EU ETS1 in future.
Reactions from market participants last Friday initially sent EUAs in the benchmark contract plummeting to a daily and weekly low of 76.92 euros; however, the price recovered to 79.11 euros by the end of the trading week. Friday’s daily high stood at 80.98, whilst the weekly high was reached on Wednesday at 82.18 euros.
Following the conclusion of the auctions for the EU Innovation Fund, the EEX published the new auction calendar for the EU ETS1 at the start of last week. Consequently, 9,119,500 EUAs will now be auctioned weekly until the end of August; in weeks without Polish auctions, 1,380,000 fewer emission allowances will be auctioned. From September, the weekly volume will increase to 16,487,000 EUAs; in weeks where Polish auctions do not take place for two consecutive weeks, 13,693,000 EUAs will be offered.
As expected, the third auction in Germany’s national emissions trading scheme, with a price range of €55 to €65, closed at the maximum price of €65. As the €65 rule has once again come into force, 21.3 million allowances were auctioned instead of the 10.67 million nEZ26, meaning that a third of the total auction volume has already been auctioned.
A total of 106 bidders took part, of whom 105 were allocated allowances at a price of €65. The total volume of bids last Wednesday stood at 411 million allowances (358 million the previous week), and the percentage of bids awarded was 5.2 per cent (6.0 per cent the previous week and 7.3 per cent in the first auction).
Assuming that companies subject to the levy have so far been able to secure 18 per cent in the first three auctions, they now still need just over 80 per cent. If, therefore, the allocation rate were to remain at 5% and, as expected, only eight more auctions were to follow, approximately 40% would still be allocated, bringing the total to around 58% of requirements, provided that bidders always bid for the full amount.
Even though we will endeavour to secure more favourable prices for our clients on the secondary market after the auction phase, one should come to terms with the price of €68 per nEZ26 for the remaining allowances, unless one bids for a volume significantly higher than one’s actual requirement.
Here is a calculation example. If the requirement is 100,000 nEZ26 and you can only acquire approximately 58 per cent of the allowances at the regular auctions at a price of €65, you would need to budget for 42,000 allowances at a price of €68 as a matter of commercial prudence. This would entail an additional cost of 126,000 euros.
If one has the liquidity, or can obtain it from one’s bank or stakeholders, one could bid for an additional 420,000 nEZ26 at two consecutive auctions and would likely be allocated around 21,000 units at each.
The surplus amounts would be available as liquidity again the day after the auction.
As the €65 rule is only expected to apply until calendar week 33, auction results below the 5 per cent allocation are also to be expected thereafter; therefore, you should not wait too long before making a decision.
Our specialists are happy to assist you with detailed advice and calculations.
| Instrument | 10/07/26 | 17/07/26 | Change |
| EUA (December-2026-Future) | 79.20 EUR | 79.11 EUR | -0.09 EUR |
| EUA2 (December-2027-Future) | 66.55 EUR | 66.55 EUR | +0.00 EUR |
| nEZ26 (national German Emission Certificates) | 65.00 EUR | 65.00 EUR | +0.00 EUR |
| UKA (December-2026-Future (UK)) | 56.40 GBP | 58.70 GBP | +2.30 GBP |
| UK Natural Gas (December-2026-Future) | 122.56 GBP | 143.54 GBP | +20.98 GBP |
| ICE Brent Crude Oil (December-2026-Future) | 75.50 USD | 83.17 USD | +7.67 USD |
| EURO (Forex) | 1.1414 USD | 1.1439 USD | +0.0025 USD |
(EUA, EUA2, UKA, Natural Gas, Crude Oil and Euro Currency shows day-end-exchange quotes of the benchmark contract. This market information has just an informational character and are no advice or offer to trade emission allowances or their futures and options. If you want to unsubscribe, please reply to this mail.)
Please call our international carbon desk if any further questions exist: +49.2831.1348220 or book here a call with one of our specialists.
With kind regards,
Your Advantag – Team