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EU’s 2010 emissions data will show recovery underway

Oslo, 29 March 2011

Thomson Reuters Point Carbon will be available for comment following the publication, by the European Commission, of the European Union’s verified emissions data for its emissions trading scheme (EU ETS) in 2010, via its Community Independent Transaction Log (CITL). The data is due to be published on 1 April. Thomson Reuters Point Carbon will be available for comment as soon as the data is released and a media advisory will be issued then. Thomson Reuters Point Carbon is the leading provider of market intelligence, news, analysis, forecasting and advisory services for the energy and environmental markets.

Although not all EU countries will have met Friday’s deadline (1 April, 2011) for submitting their 2010 emissions data, enough data should be available to provide an almost-complete assessment of the EU’s ETS emissions for 2010, indicating to what extent Europe is now recovering from the economic downturn and where recovery is slow.

Thomson Reuters Point Carbon predicts that the data will confirm that the effects of the economic downturn are now easing in most sectors after two years of declining output and related declines in emissions. Thomson Reuters Point Carbon estimates that 2010 emissions will be 1,928 million tonnes (Mt), up by roughly 48 Mt, equivalent to 3%, compared with 2009’s figures. In 2009 emissions were down by 11% compared to 2008 and the previous year emissions were down by 6% compared to 2007.

Despite the 3% increase, emissions last year look likely to come in 56 Mt below the 2010 EU ETS cap of 1,984 Mt, meaning the scheme is oversupplied for the second year in a row and the fifth time in six years and indicating that recovery has still not returned European economies to their pre-crash levels.

Emissions from industry are expected to report the most significant increase due to a 6.4% jump in production compared to 2009. Despite greater production levels, however, industrial production in 2010 was still 8% below 2008.

In terms of emissions last year the increase in production has lead to an increase in industrial emissions of 26 Mt, equivalent to 4%, compared to 2009 when emissions from industry were down 17% on 2008. According to Kjersti Ulset, Manager European Carbon Market, Thomson Reuters Point Carbon, “This increase in emissions from industry to 744 Mt is mainly due to the economic recovery following the downturn, however, effects from growth are to some degree offset by an improvement in the carbon intensity and, whilst industry production was certainly higher last year in most sectors not all have recovered at the same rate”.

She explains: “Production in the metals sector, which was down by as much as 29% in 2009 from 2008 has shown considerable growth in 2010, as has the paper and pulp sector. But for the cement, lime and glass and the oil and gas sectors, production has not improved much or has even decreased from 2009 levels”.

Emissions from the power and heat sector are also expected to have increased, by 21 Mt, equivalent to 2%, compared to 2009, as power demand picked up in line with economic recovery. Thomson Reuters Point Carbon estimates that emissions from this sector reached 1,184 Mt in 2010. The largest increases in emissions from power and heat in 2010 compared to 2009 are estimated to have been in Germany (10 Mt), the UK (6 Mt), Italy (6 Mt), Finland (5 Mt) and Estonia (5 Mt) whilst the largest drops were seen in Spain (17 Mt), Greece (11 Mt) and Portugal (5 Mt).

“Spain, Portugal and Greece saw large increases in hydro generation in 2010, which contributed to large drops in power sector emissions in those countries,” said Ulset, adding that Spain’s power and heat sector emissions were down 23% last year over 2009, equivalent to a halving of emissions from this sector compared to 2005.

According to Ulset, “We believe that the emissions data will confirm that 2010 was a year of recovery in Europe and indeed in most of the world. The fact that we are seeing emissions increase for the first time in two years suggests that the global economy, which was hit by the full force of the economic downturn in 2009, is now in recovery, though the picture does not look equally promising for all sectors and countries. In Greece, for instance, power production dropped last year by nearly 4%, although across the EU power production was up by 3.4% on 2009. And in Britain it is interesting to note that there has been a relatively small recovery in power production since the notable drop when the recession first hit, and the increase, of just 1.7%, was in large part due to an extremely cold winter. The fact that emissions from the power and heat sector increased in the UK was in large part due to the fuel used to generate power, rather than to significantly increased generation.”

Ulset added that “With the recent large year on year variations in production, forecasting emissions is more uncertain than in a steady growth scenario and as such we include in our predictions a margin of error of 31 Mt”.

Thomson Reuters Point Carbon’s estimates also indicate that participants in the EU ETS will use more carbon offsets for 2010 compliance than previously. EU ETS participants are expected to surrender 122m certified emissions reductions (CERs) and emissions reduction units (ERUs) for 2010 compliance, a rise of around 40 million units, or nearly 50%, from 2008 and 2009 levels.”The ban of certain project types from 2013 compliance and onwards is expected to encourage more compliance use of these credits for 2010”, Ulset explained.

1 April will see the European Commission release the verified emissions data per installation. The aggregate information will only be made available by the Commission in the middle of May. Thomson Reuters Point Carbon will be able to offer their aggregate data on 1 April and interviews can be arranged beforehand (see details below).

As each year more verified data is issued, future predictions and forecasts can be made with more certainty, providing an important tool for the future development of the emissions market in its second phase.

If the data released on 1 April contradicts this estimate then this could impact the market significantly.

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Kjersti Ulset, Head of European Carbon Analysis, Thomson Reuters Point Carbon

www.pointcarbon.com