Over the last few years, Bulgaria has marked annual records in revenues from EUA trading. No deviations from that trend were observed in 2022. According to the European Energy Exchange (EEX) data, 2022 annual revenues increased over 31% and exceeded one billion euro.
On monthly basis, the largest revenues were obtained in May reaching EUR 131.5 million and the lowest – in January, with EUR 51 million.
The number of CO2 emission allowances traded was 13 680 500. As stated in EEX calendar, the number will increase to 15 675 000 in 2023. This figure may be adjusted after EC announces its decision in May about allowance quantities which will be subject to consideration by the Market Stability Reserve within the period of September 2023 – August 2024.
The main reason for such higher revenues was attributed to high allowance prices in 2022.
National revenues from emission allowances (EUA), CO2 euro
During the significant part of the year, emission allowance prices on auction market (more than ¾ of the prices) remained high as went over EUR 75/t CO2. From the end of September until the end of October, certain price relaxation was observed and maintained levels below EUR 70/t CO2. Afterwards, prices began a gradual rise and by the end of December, emission allowances were traded at a price of over EUR 85/t CO2. Within that period, the lowest auction price reached was EUR 57.91/t CO2 (7 March 2022) while the highest – EUR 97.51/t CO2 (8 Feb 2022).
The average annual auction price was EUR 80.09/t. CO2 or by 47.8% higher than in 2021.
Average auction emission allowance (EUA) prices, euro/t.CO2
Forecast for emission allowance prices
At the beginning of November 2022, Reuters announced the estimates of average emission allowance price (EUA) to be EUR 78.70/t CO2 (USD 76.70/t CO2) for 2023 and EUR 92.43/t CO2 for 2024. These prices were based on the expectations that European weak economies might reduce industrial manufacture and expectations that the European Commission would increase allowance offering.
A Carbon_Pulse survey of 12 analysist indicated a 15% drop in the projections compared to previous expectations, i.e. in 2023, average EUA prices were expected to be EUR 76.90/t CO2.
On 18 December 2022, EC announced a preliminary agreement reached with the European Parliament and the Council on strengthening EU Emission Trading Scheme (ETS), on applying ETS in new sectors with the purpose of effective climate actions taken across the entire economy and on setting up a Climate Social Fund. This agreement was a fundamental step towards meeting EU commitments for reduction of net emission by at least 55% by 2030. At the same time, the Climate Social Fund would support ensuring a just transition.
EU ETS determines CO2 price and every year reduces the permitted emission levels in sectors such as power and heat generation, energy-intensive industrial sectors and commercial aviation. This agreement will secure emission reduction in ETS covered sectors by 62% by 2030 against 2005 levels which in fact is a substantial rise from 19 percentage point compared to 43% laid down in current legislation. The pace of annual emission decrease will also be accelerated – from 2.2 % annually under the present system to 4.3 % from 2024 to 2027 and to 4.4% after 2028. The Market Stability Reserve which provides stability to carbon emission market via removing redundant allowances will be strengthened. This agreement will lead to a gradual withdrawal of free emission allowances for certain enterprises and a phased introduction of Carbon Border Adjustment Mechanism between 2026 and 2034 for the sectors covered.
The agreement included also emissions from the shipping sector which would fall under EU ETS. To support Member States in their efforts to reduce emissions from buildings and road transport, and from some other sectors, starting in 2027, a new separate emission trading system would be launched to cover the respective types of fuel. Thus far, these sectors had not shown satisfactory emission reductions. The new system was expected to provide cost-effective decrease and to generate revenues for Member States, and also to support the Climate Social Fund. Some precautions aiming to release additional allowances on the market were also envisaged provided prices exceeded the thresholds defined, and in order to avoid double pricing when national measures were put in place.
Furthermore, an increase in the innovation and modernisation funds was envisaged. The Modernisation Fund would support the transition of three more Member States. The Innovation Fund would be extended to cover supporting maritime sector efforts towards decarbonisation.
Revenues from emission allowance trading – an important element in EWRC pricing policy
Revenues from emission allowance trading are an important tool to incentivise low-carbon development in Bulgaria. Revenues acquired from auctioning greenhouse emission allowances allocated to Republic of Bulgaria are 100% fed into the Energy System Security Fund (up to June 2016 – 77%) and are used to reduce the price of obligation to society charge. The total revenue amount for the new regulatory/pricing period (Decision Ц-19/01 July 2022) is projected to be BGN 2 436 415 000. The Regulator has taken into account the net allowances for greenhouse gas emissions to be realised by Bulgaria according to European Energy Exchange calendar and projects a price of EUR 85.00/t starting from 01 July 2022, gradually rising to EUR 99.00/t by 30 June 2023. The first half of the pricing period showed revenues in the vicinity of BGN 1billion or 43% of the forecast.