Robert Jeszke in Biznes Alert – interview

Robert Jeszke in Biznes Alert – interview

Robert Jeszke in Biznes Alert – interview

On February 23, 2022, Robert Jeszke, the head of CAKE, gave a very interesting interview to the Biznes Alert portal on, inter alia, the problem of manipulation in the allowances market, possible safeguards against excessive price increases, the energy crisis and the reform of the energy sector.

From the point of view of installations covered by the EU ETS, it is very important to reduce speculative activities, that can lead to manipulation, and to stabilise the price of emission allowances. Since it is the prices of allowances in the EU ETS that have a significant impact on production costs, their sudden and drastic increases can lead to disturbances in the market and unjustifiably increase costs. On the other hand, excessive speculative behavior in the market can also lead to sudden, large drops leading to its volatility. The importance of introducing appropriate safeguards in the market for emission allowances has been demonstrated by the recent 10% price correction (from a price close to EUR 100). As soon as it came out that the only currently functioning (but unfortunately very flawed – art. 29A) price mechanism in the EU ETS, which could release the EUA to the market will be reformed, a real sell-off has begun. This also shows that those speculators, about whom there has been so much talk lately, and who do not seem to be noticed by the ESMA (the EU agency that oversees the trade in CO2 emissions – ed.), are present on this market. This is why it is necessary to implement a safeguarding mechanism for the market. It is only recently that this topic has come out in the media, but we have been talking about it loudly for a long time.

The recent gas crisis, which has had a significant impact on all member states, but also on other countries, has proved to be a more urgent and impactful issue during the Council summit. It should be borne in mind that such high gas prices mean that even at current prices for emission allowances, electricity generation from coal is more cost-effective than from gas, even though it generates about two and a half times more emissions per MWh. This is why once the natural gas prices come back to the regular levels, it will impact the prices on the EU ETS market, which means this problem is more pressing. Nevertheless, the issue of the EU ETS market itself, including rising prices for emission allowances, contrary to signals from Poland, was not considered during the recent talks, has been observed and analyzed for a long time. The debate on the reform of the EU ETS, in addition to its alignment with the new, more ambitious climate policy objectives included in the European Green deal and the Fit for 55 package, also includes mechanisms to protect this market from excessive price fluctuations.

In Robert Jeszke view, the market for allowances will continue to be highly volatile in 2022. It is almost certain that quotations will be above EUR 100 in 2022, but the pace of these increases should not be as quick as we observed in 2021, given the potential risks to prices that may occur in 2022. This is not just about the persistently high gas prices – although the heating season is coming to an end, which should contribute to their decline, there is still an increasing risk of the Russian-Ukrainian conflict. This is compounded by the elements of the Fit for 55 package being negotiated by the states, such as the pace at which free allowances are to be phased out, the final shape of the MSR reform, or the introduction of these anti-speculation measures.

Poland should diversify its energy mix by focusing on the development of RES and gas capacity, which will be necessary to balance the system. It should also invest in nuclear power plants, whose presence would ensure stable and emission-free electricity production. Unfortunately, the construction of nuclear power plants is a complicated problem both technically and financially, and the launch of the first units of this type will most likely be possible only in the 2030s. We must be aware that investments in energy are necessary not only because of climate policy, but also because of the age of the generation infrastructure. No matter in which direction we transform the energy system, in the coming years the costs of generating electricity and heat will increase and, consequently, the bills of consumers will also go up. It must also be remembered that, for technical reasons, we are not in a position to modernise the energy system in the short term so as to avoid incurring high costs of emission allowances, but if we set our sights on a gradual transition, we will ultimately be less dependent on both – the cost of fossil fuels and the cost of purchasing emission allowances.

The entire interview is available here