EU Carbon Market Still Oversupplied Despite Economic Recovery

LONDON, April 1, 2011 - The EU emissions trading system (EU ETS) is still oversupplied, despite
emissions rising for the first time since the recession started, fresh data
shows.

Companies under the EU ETS pumped out 1,757m tonnes of CO2 in 2010, up
around 3% from 2009 but still lower than the total supply of allowances,
created by the EU for that year.

The oversupply would have triggered a price crash towards zero if it
wasn't for the fact that companies can bank allowances into a later trading
phase, starting in 2013.

The data from the European Commission is still preliminary, but only a
few plants have not yet submitted their emission reports, indicating the
final figure should be similar.

ICIS Heren data shows that EUAs - the traded instrument in the EU ETS -
remains at just half the prices they hit in 2008, before the recession
struck. EUAs with delivery in December 2011 - the benchmark contract - have
closed on average at EUR16.50/tonne of CO2 in March, compared with prices
above EUR30.00/tonne of CO2 in mid-2008. "The carbon market was stable on
Friday after the data release, showing that companies have already factored
in a rise in emissions into prices," Isabel Save, editor of European Daily
Carbon Markets, said.

The surplus of EUAs is not evenly distributed across countries
and sectors, however. Power producers in the UK were short of 35m EUAs in
2010, while the German power sector faced a shortfall that was double as big.
In contrast, steel and cement makers in Europe had 125m EUAs to spare,
compared with their free allocation.

Notes for editors

Launched in 2005, the EU ETS works on the cap and trade principle. This
means there is a cap, or limit, on the total amount of greenhouse gases that
can be emitted by the industrial and power plants in the system. Within this
cap, companies receive emission allowances (EUAs) which they can sell to or
buy from one another as needed. The limit on the total number of allowances
available ensures that they have a value.

At the end of each year each company must surrender enough allowances to
cover all its emissions, otherwise heavy fines are imposed. If a company
reduces its emissions, it can keep the spare allowances to cover its future
needs or else sell them to another company that is short of allowances.

The number of allowances is reduced over time so that total emissions
fall. In 2020 emissions will be 21% lower than in 2005.

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    For further information please contact:

    Isabel Save
    ICIS Heren
    t: +44(0)20-7911-1942
    e: isabel.save@icisheren.com

    www.icis.com/heren

For further information please contact: Isabel Save, ICIS Heren, t: +44(0)20-7911-1942, e: isabel.save at icisheren.com