CO2 to bounce over borrowing wall

Speculators may have been a major contributor to a recent upturn in prices, but several challenges remain for carbon market participants. Brexit and an EUA “borrowing wall” at the end of 2020 – will CO2 bounce over it?

Listen to the latest episode of the Montel Weekly podcast for an update on the key price drivers for this year and beyond. 

Host: 

• Richard Sverrisson, Editor-in-Chief Europe, Montel. 

Guests: 

• Paolo Coghe, president of Acousmatics, 
• Alessandro Vitelli, carbon/energy reporter. 

Transcript

Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:05

Hello listeners and welcome to the Montel Weekly podcast, bringing you energy matters in an informal setting. I'm Richard Sverrisson. And I'm Anna Siwecka. Today we're joined by Alessandro Vitelli and Paolo Coghe. Alessandro is an expert in all matters Carbon. I've been covering this market since the 1780s. Paolo of consultancy cosmetics has analyzed EU power carbon and coal coal markets for almost as long A warm welcome to you both. Hello? Hello. Thank you. Today we return once more to the European carbon market, an important driver of markets across the continent, and hopefully a trigger for a cleaner energy mix and a cleaner, cleaner world in general. Alessandro, CO2 prices, they rose Euro five in April, about 20%. That's right. Um, uh, and why, why is that? I mean, they've since come off a bit, so could you talk us through the dynamics? Sure. Uh, so April and this week as well.

Alessandro Vitelli, carbon/energy reporter: 0:57

Back in the beginning of April, we were still digesting the delay of Brexit from the end of March through to the end of October. And that postponement, I think, drove a slight relief rally in the market because investors were not certain how things were gonna go with a sudden Brexit at the end of March. Instead, we now have another six months or so to argue over the details and get a deal, perhaps. Mm-hmm. And that. Gave them a sense of, of continuity and, and the optimism to remain invested in carbon. Secondly, we had the compliance deadline at the end of April, so there was a. A steady, you know, drumbeat of buying from compliance installations throughout the month, and that also supported prices. You also had, uh, energy levels, more or less holding firm throughout the month, and that also supported carbon. Now that we've come to the end of all of that, the end of the compliance period, the Brexit postponement is kind of worn off. Now we move into May, which is traditionally a more mixed month. If you look back at the performance of the carbon market. Throughout the month of May. In historical terms, it's risen six times, it's fallen five times. Mm-hmm.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:06

So it's, it's more of a, a 50 50, even Stevens. Yeah. Yeah it is. Yeah. What are your views here, Paolo? Is this, I mean, from what Alessandra is saying, this is more psychology. Uh, we're past the Brexit, the fears of a Brexit and a, and a and a hard Brexit. But, um, are there other fundamentals at play?

Paolo Coghe, president of Acousmatics: 2:23

Yes, I agree with Alessandro. Essentially, this move was a short term move. I think technicals, uh, come into, into play because the market sort of toyed with this level. Um, one level in particular that comes to mind is 25.7, uh, which, you know, was broken after, after a few attempts. And when, when this happens, the market tends to, if it's broken from coming from the bo bottom, it tends to shoot up. Uh, but then these. Euphoria sort of tends to, uh, be brought to a halt almost by profit taking, which is another, uh, characteristic of such, of such markets. This is technical analysis 1 0 1 where resistance becomes support. So I expected the markets, once they broke to the upside to continue that, and at the same time, the relief ready was, uh, brought back into, into the choral, so to speak, uh, by profit taking. Mm-hmm. This dynamic, uh, is, is not atypical, so to say. And so, uh, while it was expected then that the actual measurements of how much it goes up or how much it goes down remain to be, uh, to be seen.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:31

Mm. As you were gonna add something here, one

Alessandro Vitelli, carbon/energy reporter: 3:34

additional point is on a very purely technical point, may the second, the, the declining markets managed to fill in a gap. That was created between the high of April the ninth and the low of April the 10th. And now that 8 cent gap between the low and the high was whole, it was hanging over the market a little bit. People were, were referring to it and people were remembering that this gap needed to be filled. Today we've done that. We're now down to, you know, 25, 20 area. So we filled the gap and what comes next is gonna be really interesting. So we're now at a sort of a critical point, I think for a. Return to the upward trend, or do we see a little bit more selling?

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:10

Mm-hmm. What are the aspects to look out for it in May then here?

Alessandro Vitelli, carbon/energy reporter: 4:14

Difficult to say. I, I think watching the gas price is going to be an important thing. Mm-hmm. Um, as you know, gas has been under pressure from massive oversupply for the past coup, you know, few months and I. Whether or not gas can sustain current levels, or if they drip, uh, you know, drip further, slowly, slowly, slowly falling, uh, that may take away some of the support. Mm-hmm. If, however, things balance out and we have a, a sustained consolidation slash slow rally, that could help carbon as well on its way back up.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:42

What are your views here, Pablo?

Paolo Coghe, president of Acousmatics: 4:46

Brexit, Brexit. Brexit in a way. So we're back to Brexit in, in May, back to Brexit because not, not in May, but again, they con we're still feeling the consequences of what was essentially very recent news. You know, as far as we knew Brexit should have happened at the end of March. Well then by the 12th of April, and now here we are looking at this future that goes, you know, all the way up to Q3 essentially. Mm. Um, but, but that is continued to influence, uh, markets. Because of a couple of reasons. One is of course, market participants have already priced in some of the uncertainty related to Brexit, but not all of it. So I expect this to continue influencing the market is now don't, please don't ask me in which direction this will go. The only thing that I guess is safe to say is, is expect a bit more volatility.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:32

Mm-hmm. A, a rollercoaster ride or. Yes.

Paolo Coghe, president of Acousmatics: 5:36

Especially because one of the important components of these markets, if we are looking at, uh, the short term is the speculative component. Mm-hmm. And speculators add liquidity and love volatility.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:48

Mm-hmm. So speculators will be looking at this market again.

Paolo Coghe, president of Acousmatics: 5:51

Yes, speculators have been back into the market, or if they ever left it, yeah, no, they never, they never really left it. And then there's different kinds of speculators, but, but in terms of market dynamics, what speculators do is essentially, as I said, add liquidity, but at some point they like to take a profit. And so this surge that we've seen with the market. Heading towards 30, which was not reached, but then, you know, coming back, I think it's partially driven, um, by the speculators taking profits. That however, is not the only dynamic.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:22

Mm-hmm.

Alessandro Vitelli, carbon/energy reporter: 6:23

Sure. Is this your hearing as well? I do hear that. I mean, I think Paolo makes an important point here, that Brexit, it's not gone, it's just receded a bit into the distance. And as we proceed through May and June, that's going to come back onto the horizon and get closer to us, and that's going to affect the way people act in the market, particularly the speculative elements. Mm. So. It's gone away for a little bit and that helped us in April. It may even help us in May, but as we proceed into the summer, it's going to come back. Mm. And we need to be aware of that. Help us in terms of increasing prices. It Well, the fact that it got postponed mm-hmm. Was what helped April prices rally 20%. Mm-hmm. Um. But we get to June, July, August, it's coming back over the horizon, right into the forefront of our, of, of our view, and people will then react to it. What's interesting though is that price ideas now for the balance of the year have taken a small shift. Should we say downwards we were, there were plenty of people talking about 30 euros. They're not talking 30 anymore, they're talking maybe 28. Mm-hmm. So we've been, or 22. Well, 24 28 range. Okay. That's what I'm hearing the most from people. This is, is that kind of range for the bulk of, of the balance of the year, that represents a slight adjustment downwards, but not an important

Richard Sverrisson, Editor-in-Chief Europe, Montel: 7:36

one. Mm. And of that 20% rise in April, I mean, was that partly or largely due to speculators in the market? I would think that

Alessandro Vitelli, carbon/energy reporter: 7:44

was a factor. I, you may even have had some compliance element, because remember, people don't just buy in April for the previous year's. Compliance, they're buying all year long. Mm-hmm. There are many utilities out there, particularly Eastern and Southern Europe, who do not sell power three years ahead and hedge the carbon, hedge the fuel. They sell power within the year and they hedge as they go. Mm-hmm. So there's a constant. If you like, a base load of demand in carbon and fuels from those kind of utilities. Mm-hmm. They are the ones who are, you know, still there, still there, still there all the time. That buying doesn't go anywhere. Um, on top of that, you then have industrial compliance companies who having experienced a shock of their lives in 2018 when they were staring at a price of 15, 16 euros. When previously it had been six or seven. Think we better be a little bit more proactive about this. So there's that to consider as well. So there are people out there who've just finished their 2018 compliance who are now saying, let's go out and start picking up some 19 EUAs as well for what happens in, in, in, you know, 12

Richard Sverrisson, Editor-in-Chief Europe, Montel: 8:43

months time. We've been talking about technicals and you, you mentioned some of the patterns, but how about the fundamentals? I mean, there are some, some bearish factors out there. I'm, I'm thinking, you know, 2018 emissions fell. What's the outlook for 2019 for, especially for power sector emissions and, and what impact could that have on hedging demand?

Paolo Coghe, president of Acousmatics: 9:03

Yes. So from one point of view, you have to keep in mind that this market, after all, is vastly oversupplied still, right? And there are things that are happening from the regulatory side, namely the market, uh, stability reserve, which are, you know, progressively tightening the market. So, so we must never forget this now. If the market is excessively long, who holds this length and what kind of price levels do we need to have to encourage this length to change hands, essentially. And so whose long is industrials? If you look at European PMI indices over the last couple years, they've been, you know, coming down, uh, they never really recovered properly since the crisis of, uh, a decade ago. And so industrials have length. Speculators also have length, who's on the short side of this is utilities. And so prices need to be high enough to encourage this length to move from the current holders, which is speculators, which made the smart buys right at five, at 10, at 15, and so on and so forth. And industrials because they've not been polluting as much to utilities. So what Alessandro was mentioning in terms of this commodity complex and fuel prices and the relativities of. Coal versus gas prices, um, are going to have an impact as the new season comes. Hmm. And so once you look into this, you must also look at weather and for example, one consequence of a very strong hydro year last year is the fact that there was less fossil fuel generation. Which then itself led to decreased emissions.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 10:41

Hmm.

Paolo Coghe, president of Acousmatics: 10:42

Once again, we are talking about quantities of about a hundred million. So at the margin, if you think of a surplus of 1.5 billion tons, right?

Alessandro Vitelli, carbon/energy reporter: 10:53

The other thing to bear in mind is, is that we had a fairly mild winter look at all the natural gases being, you know, coming over and someone wrote a, a headline describing an armada of LNG tankers coming this way. Mm-hmm. Storages are at high levels for this time of year, uh, and they will only get hires more and more. Ships come this way. Um, gas is in the money as a generating fuel. It certainly doesn't dominate, um, the generation, uh, portfolio across Europe, but it is certainly doing a lot better this year than it did this time last year. Mm. And if prices for gas continue to go down more switching takes place. Fewer emissions. So we had a 3.8% drop in emissions. Uh, in 2018. We could see a similar, perhaps even a bigger drop this year if you combine more fuel switching, more solar, more wind, and perhaps a little bit less hydro, right? Because the, because the water levels are a little bit lower. But at the same time, you've got industrial confidence dropping their PMI indices keep, keep coming in lower and lower. Um, the, i the overall picture is one of another year in which emissions will fall. And then in theory then prices should also point downwards. That's also true, but then you have to calculate that the MSR removes more allowances from the market than the reduction in emissions releases into the market, as you see what I mean? Sure. The

Richard Sverrisson, Editor-in-Chief Europe, Montel: 12:10

MSR is a very, it, it's a

Alessandro Vitelli, carbon/energy reporter: 12:12

game changer. It, it is the most important factor. Now, another thing that we haven't mentioned from May is the, is the calculation of the total number of allowances in circulation, which is a calculation that the European Commission will supply in about two weeks time. Mm-hmm. Which, so, so keep reading Montel. Keep reading. Montel. It will tell us how many, what the surplus is effectively, and from that number they will calculate how many EUAs to remove from the market from September this year through until August next year. So we will find out exactly what the auction program is going to be from September to December. Uh, we will find out exactly how long the market grew this year. Uh, in, in 2018 rather. And, and people will be able to act on the basis of that information. That's, that's important statistical information that do that, that tells us how the MSR is going to work in the next year.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 13:01

Paula, you mentioned industrials, and there's been, um, one industrial in particular this week that's hit the headlines is British Steel. It announced early on in April that it couldn't meet its ETS shortfall as it hadn't received its allowances for 2019. So in previous years, the company had borrowed from its forward allocation to cover compliance. At the end of April. Now what, what's the current situation? Um, it's, it's apparently managed to secure this loan. What's the deal here? What, what are the implications of this?

Paolo Coghe, president of Acousmatics: 13:30

Well, the general behavior, uh, that, uh, industrials have had is a sort of a common practice is that they have borrowed from. Future years to be able to sell, you know, sort of monetize these, their length, right? Again, they're not polluting enough. They've got excess uh, allowances they can even borrow to monetize these allowances as prices go up. One crucial element here is that though we are at the end of the phase and there's no borrowing in between, in between phases, so it's a little bit of a, of a, of a game that's come to a, an abrupt end.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 14:09

Mm-hmm.

Paolo Coghe, president of Acousmatics: 14:09

And

Richard Sverrisson, Editor-in-Chief Europe, Montel: 14:10

there's a Brexit factor as well,

Paolo Coghe, president of Acousmatics: 14:11

and there's a Brexit factor as well. And so one general point is that, is that if this is a behavior that's not just of British steel, but also companies in a similar situation, these would tend to have a, a supporting impact on prices, right? The last thing you want to do is to have to cover a short position. Hmm. In an environment where prices are rising, right? Sure. So, so that's supportive for EUA prices. But one other point I wanted to, to bring up and, and, and maybe ask Alessandro is, um, a hundred million, that's a lot of allowances. That buys a lot of allowances, doesn't it?

Alessandro Vitelli, carbon/energy reporter: 14:49

Yes. I think their allocation comes in at just over 6 million tons a year. This is British steel. Mm-hmm. They're free allocation to three sites in the uk. It comes into over 6 million tons. Mm-hmm. Um, and that today, today's prices would generate something in the order of 130 million euros from, from my calculations. So that sum of money, the 120 million they borrowed from the UK government. Mm-hmm. Um, the UK government then took that money, went out and bought the allowances, and then gave 'em to British Steel to surrender last week or Monday. They have to find that money going forward. And there is a, it's a short term bridging facility, but the, the, the, uh, government statement that was made yesterday says, the government will take ownership of a British steel allocation for 2019 and monetize those allowances to recoup the

Richard Sverrisson, Editor-in-Chief Europe, Montel: 15:43

funds. But this raises important implications, not least state aid issues. I mean, you know, if, if, if, you know, across Europe, if the governments were to step in and to cover the shortfall for certain companies, I mean, uh. What ask yourself though is a loan, state aid is a bridging

Alessandro Vitelli, carbon/energy reporter: 16:01

loan. State aid. I'm not one to decide. I'm sure that's something for, for Brussels particularly, that's why it's being presented as such. Now it's possible that, um, bear in mind the UK government has said it will sell 2019 allowances belonging to British Steel to recoup the funding. At the moment, there are no UK allowances for 2019 because of the current Brexit, uh, safeguard mechanism. So it is possible that the UK government will never be able to sell 2019 allowances. So what happens then? We then pitch for ourselves further forward into a future in which there's a UK emissions trading system, and perhaps that is when the government would take. British steel allowances from a domestic ETS and sell them off. Mm. Of course the price is important as well, because the government's had to pay X Euros a ton for those allowances that had to buy for the British Steel. Will the UK ETS price in the future guarantee that we are, that, that the government will recoup the loss entirely,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 16:57

or even the ES price? Yeah. Yeah. No, absolutely. I was, I mean. Um, but you, you've also been very critical of the potential management strategy around this at British deal. Yeah. I mean, what, what could you, um, could you

Alessandro Vitelli, carbon/energy reporter: 17:09

Yeah.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 17:09

Say something about that.

Alessandro Vitelli, carbon/energy reporter: 17:11

The whole idea of borrowing raise its head back in this global financial crisis when companies who were short of cash and coming up against. A crash in global demand and et cetera, et cetera, found themselves in a situation where they needed to quickly raise money. And they got a little gift of uas,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 17:28

a package of UA in February.

Alessandro Vitelli, carbon/energy reporter: 17:29

Well, they did, they, they worked out that you receive your current year allocation by the end of February, early March. You only have to retire allowances to cover your previous year's emissions by end of April. Mm. So you have a two month overlap. So. Smart companies would've said, well, hang on a second. I'll sell my 2012 EUAs and I'll use my 2013 allocation to pay off my 2012 compliance, and they could continue to borrow in for 2013 compliance. They'd borrow their 20 fourteens and so on and so forth. At the end of this phase, that borrowing cannot happen, as in you cannot borrow your 2021 allocation to pay off your 2020 compliance. You call this

Richard Sverrisson, Editor-in-Chief Europe, Montel: 18:06

the borrowing wall? The borrowing wall.

Alessandro Vitelli, carbon/energy reporter: 18:08

Mm-hmm. Now for small, smaller companies who don't have access to the wider market, who have to act through brokers, agents, banks, or whatever, they may not have access to the financial derivative products that would allow them to move into, to borrow from phase four. It can happen. You simply do a time swap. What you do is you buy 23rd, uh, 2020 EUAs for your 2020 compliance, and then you sell 2021 EUAs to balance that. Into phase four using a derivative or using a derivative, a swap. Basically you do enter phase 4, 20 21 with a shortfall of one year. So you've basically delayed the problem by using a sophisticated financial product to bounce your borrowing into the next phase.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 18:54

Mm-hmm. So you're kicking the borrowing into the long grass. Yeah. So it,

Alessandro Vitelli, carbon/energy reporter: 18:57

I mean, the larger companies, I mean who, who have this, who have this situation at hand, will. Could possibly do that. Mm-hmm. Other companies who don't have access to that kind of capital, that size of market, may, may find themselves, you know, having to scramble around for EUAs, borrowing them

Richard Sverrisson, Editor-in-Chief Europe, Montel: 19:14

from a bank. But is it more of a, is it a borrowing wool or a borrowing kind of bounce? Is it, or, I mean, how,

Alessandro Vitelli, carbon/energy reporter: 19:19

well, if you're smart enough and you've got a big enough rubber ball, you can bounce over that wall.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 19:24

Mm-hmm. I like it. How about you Paolo? What your, what are your, uh, views on this?

Paolo Coghe, president of Acousmatics: 19:29

Yeah, you will need some sort. Financial sophistication to do that. And let's not forget the interest in of doing this for many smaller companies, as Alessandra is saying, they're just busy and interested in making widgets, so to speak, right? They don't want to have these additional concern of having to manage fi sophisticated financial products

Richard Sverrisson, Editor-in-Chief Europe, Montel: 19:48

and the risk associated with that. I mean, and of

Paolo Coghe, president of Acousmatics: 19:50

course the risk associated with that, and it seems

Richard Sverrisson, Editor-in-Chief Europe, Montel: 19:51

like British Steel did not have that in place

Alessandro Vitelli, carbon/energy reporter: 19:53

or to, to go back to British Steel at some point. In the last 10 years, whether it was under the ownership of Tata Steel or under the ownership of Gradeable Capital, someone took a decision to monetize a year's worth of allowances for cash and to borrow the next year's allocation for previous year's compliance. Now, we don't know when that decision was taken. It could have been done by tar, it could have been done by Gray Ball. The point is, is that Brexit has cut, has has provided a wall. Hmm, because Grable simply does not have the resources to buy one year's worth of allowances, or it doesn't have the cash in hand, it's had to borrow the cash.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 20:33

Mm.

Alessandro Vitelli, carbon/energy reporter: 20:33

Um, whether that was a mistake, whether it was poor risk management, uh, is neither here nor there. The fact is, someone made a bad decision. Hmm. Um, and it's come back to bite

Richard Sverrisson, Editor-in-Chief Europe, Montel: 20:44

them. Yeah. I mean, is this, uh, a boon for companies who are offering, offering consultancy or financial services? Um, it

Alessandro Vitelli, carbon/energy reporter: 20:54

may well be that the, the services required. To go through this process where you, you know, go to the market, you know, buy the EUAs and surrender them, can be applied, can be supplied by intermediaries of various types. Mm. Um, the fact is that is a British deal, said, well, you know, we're a big company. We are a big employer in this country. Um, we're gonna go straight to the top and get a bailout from the top. Mm-hmm.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 21:21

Sure. I mean, but do you think this is the tip of the iceberg, uh, polo or.

Paolo Coghe, president of Acousmatics: 21:26

Well, I don't think British Steel is alone in this practice. Um, however, if we want to attach some weights to this, I don't, I don't know how many other large companies would've done it on such as, on such a size.

Alessandro Vitelli, carbon/energy reporter: 21:38

Mm-hmm. Remember that British Steel or Tata Steel, it's a commodity making company. They, they, they make steel. They're involved in futures markets all the time. They're involved in all these sophisticated financial transactions. They're like a tea and steel or any other big company.

Paolo Coghe, president of Acousmatics: 21:53

Correct. And let's not forget. Um, um, for an exchange, right? Yes. So the, the fact that the dollar has appreciated and the impact that this has had over, uh, other currencies.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 22:02

So for the carbon is a very small piece in, in, in their sort of global pie, if you like.

Alessandro Vitelli, carbon/energy reporter: 22:07

Not every company is gonna have access to the kind of tools that larger companies in the E-U-E-T-S have

Richard Sverrisson, Editor-in-Chief Europe, Montel: 22:14

or the financial sophistication that that involves. Exactly, exactly.

Paolo Coghe, president of Acousmatics: 22:18

Or the appetite for risk taking.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 22:20

Hmm. That's, I think that's more to the point as well. Maybe you see variants across variants across Europe, uh, in that regard. Sticking to the uk, so Brexit has been delayed to October. What about the, the auctions that are supposed to happen in the uk? Um, will the UK get clearance to issue auctions for this year? If you look at the

Alessandro Vitelli, carbon/energy reporter: 22:41

text of the regulation that the European Commission published, it says that the UK will only be able to auction and allocate EUAs the day after the ratification of the withdrawal agreements. Now, that could happen any time between now and the end of the year, so. It's really not up to the commission, not not up to the commission, whether or not to give the e UK clearance to issue allowances. It's up to the UK government to agree to the withdrawal agreement before that sign. Sign the deal, sign on the dotted line, and you'll get your EUAs. The question that occurs to many people is what happens if we have to wait all the way through to October, if we wait till October, and the chances are the UK government might ask for a further delay. Uh, what happens then? So, no auctions this year, do we just chalk off 2019 and say, look, let's, you know, forget about it. Mm-hmm. Um, and if there's a deal at the end of the 2019 or early 2020, what do we do about 2020? Who knows? But the, the, the point is, is that the ball is most definitely in the UK's court here. It controls whether or not the U-E-U-E-T-S can continue to apply to UK companies. In the meantime, put yourself in the, in the position of a UK utility. Who don't get any freebies at all who have to buy from the market. They are out there buying if they're being very careful, they're buying EUAs to cover their generation, their emissions every day in 2019, not certain whether or not they'll actually be able to use them. Mm. And if when the UK leaves the eu, will those EU a's that the UK utilities own, be fungible, be tradable? Can they sell them back into the marketplace? Mm-hmm. I don't know what the, the industrials would do. They would probably say, look, we should be getting a free allocation. So we, you know, we'll wait for that.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 24:31

So, Paolo, what are your views here? I mean. This is a great deal of uncertainty for UK companies.

Paolo Coghe, president of Acousmatics: 24:37

Yes. And let's again, let's not forget that if indeed there is a disorderly Brexit, a no deal Brexit, you know, this will have a strong impact on the, uh, economic, uh, side for both the EU and, and the uk. And I think the size of this impact is larger than what happens to simply to the the carbon markets. Yeah, the carbon market. Yeah.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 24:56

But even so the, in the carbon markets. What would have, so if the u this uncertainty for UK companies, um, needing to cover 2019 compliance without these auctions, does that have a wider impact in the ETS for, for, you know, both for, uh, supply demand and or prices?

Paolo Coghe, president of Acousmatics: 25:13

Yes. And, and again, let's not forget once again that that. There was a relief rally once the no deal Brexit in March, early April was avoided. Right. So you've gotta reverse that and go the other way. If there is a no deal Brexit that created creates way more problems and that would have a strong perish impact on the commodity price.

Alessandro Vitelli, carbon/energy reporter: 25:36

Yeah, I mean the UK is net long of EUAs it, it emits. Fewer tons of CO2 than it issues in EUAs. So a removal of the UK from the market, which is effectively what we're seeing right now is tightening does tighten the market. Mm-hmm. Not by hundreds of millions of tons, but by an appreciable amount. Mm. If we have a deal, the e UK resumes participation, its supply comes back to the market. The market is therefore a little bit longer if there's a no deal Brexit. The question then becomes what's gonna happen to. Older UK uas pre 2019, will they come back to the market? Will they be sold off? Are they already parked in accounts over the channel waiting to be sold?

Richard Sverrisson, Editor-in-Chief Europe, Montel: 26:25

Yeah, I think there's, there's a lot of stuff here to, to come back to in the coming weeks or months, and I very gladly, uh, uh, invite the, these two veterans of, of the carbon market back, uh, um, for another pod. But I think we, we have to round off here. Next week we'll be in Germany at our German Energy Day in Dusseldorf. We're the latest hot topics from from that market, so, so please, please join us there and don't forget to keep up to date with our reporting on Monte News and follow us on Twitter and LinkedIn. Thank you very much, Powell. Thank you very much, Alessandro. Thank you.

Paolo Coghe, president of Acousmatics: 26:59

Thank you, Richard.