EU Council reached an agreement on Fit for 55 package

The European power spot prices eased yesterday, pressured by an early weakness of gas prices and forecasts of stronger wind, solar and hydro generation. The day-ahead prices averaged 308.92€/MWh in Germany, France, Belgium and the Netherlands, -23.33€/MWh day-on-day.

After a bearish opening, the power forward prices quickly reversed and climbed further up amid fears of supply crunch for this winter with additional support from the soaring emissions prices. Some market participants also pointed to the current low liquidity fueling the seemingly endless rally of power contracts. Driven up by the uncertainties over the nuclear availability to come, the French prices for this winter continued to surge to extreme levels with the November 22 contract gaining 37.50€/MWh from the previous day to close the session at 857.69€/MWh.

On the carbon market, prices were seen sharply rising ahead of the environmental Council’s vote on the Fit for 55 package which took place this night after a very lengthy day of negotiations. The EUA Dec.22 closed at 87.40€/t, +2.35€/t from Monday’s settlement. Likely boosted by the market’s low liquidity, the driver behind the hefty gains however seems mainly speculative since the Council was expected to support a position less ambitious than the Parliament’s one voted last week. 

Nonetheless, the outcome of the ballot was positive since after 16 hours of lively debate the ministers managed to reach an agreement on the Fit for 55 package with, as expected, a position mostly in line with the Commission’s proposal. The Council hence approved a 61% 2030 emissions reduction target (2 points below the Parliament’s proposal) with a LRF raised to 4.2%, including a cap rebasing of 117mt. Much less ambitious than the MEP’s amendment of decreasing upper threshold, the Council also agreed on the Commission’s proposal only to extend the 24% intake rate of the MSR beyond 2023. Regarding the CBAM, a free-allocation phase-out over 2026-2025 was voted with a slower reduction at the beginning and an accelerated rate of reduction at the end of the period. Among the marginal changes from the Commission’s proposal, the Council decided to redistribute 3.5% of the ceiling of the auctioned allowances to the Member States heavily dependent on maritime transport to make up for the inclusion of the sector into the EU ETS, and to delay the start of compliance for the new ETS 2 (road transport and building) by 1 year to 2028.

The official press release with the major reforms voted is available here.

Yesterday’s vote will allow for the trilogue negotiations between the three EU entities to start after this summer, hence maintaining the possibility of an implementation of the reforms as of 2024.