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EU ETS CO2 emissions seen rising 0.5% in 2017: Analysts

London — Carbon emissions from power plants and factories covered by the EU Emissions Trading System rose 0.5% to 1,757.3 million mt in 2017, according to a poll of six market analysts by S&P Global Platts.

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It was the first time since 2011 that emissions were estimated to have risen, after industrial production slumped in the wake of the financial crisis of 2009-10.

The increase was attributed to gains in industrial output across the 28-nation bloc, while greenhouse gas emissions from power plants were expected to drop, despite extended outages at French nuclear units and poor hydro generation in southern Europe.

The European Commission will publish preliminary data on verified emissions for 2017 on April 3, which will be used to establish compliance levels for more than 12,000 installations participating in the bloc's cap-and-trade system.

"We forecast a 15 million mt (0.5%) increase for 2017, hence emissions will be 1,762 million mt," said Espen Andreassen of Wattsight, an energy market consultancy.

"We expect the power and heat sector's emissions to have decreased by approximately 3 million mt year on year, even as power consumption in eastern Europe grew strongly. This was, however, offset by a strong increase in wind power, and a marginal increase in photovoltaic power."

Wattsight forecast industrial emissions rose in two of the three largest sectors: steel by 7 million mt and cement by 6 million mt, with petroleum refining experiencing a decrease of 1 million mt.

"For all other sectors, we expect a 7 million mt increase," Andreassen said.

Analysts from Thomson Reuters Point Carbon predicted a similar outcome, calling for total emissions under the EU ETS in 2017 to increase by 0.3% to 1,756.6 million mt.

"Emissions from the power and heat sector [will] see only a small decline... as lower coal generation and rising renewables was outweighed by less hydro production in Southern Europe," analysts at Point Carbon said in a report.

The analysts predicted power sector emissions fell 0.6% to 959.9 million mt in 2017. Thermal generation (from gas and coal) rose 6% from 2016 levels, Point Carbon said, but renewable generation continued to outpace conventional sources.

Gains in renewable output led to lower power emissions in Germany (6%), the UK (11%) as well as Denmark and the Netherlands, according to Point Carbon.

However, interruptions at numerous nuclear plants in western Europe, as well as significantly lower hydro generation led to increased thermal supply and emissions in Portugal (28%), Spain (16%) and France (15%), Point Carbon noted.

Industrial emissions also increased, powered by a recovery in industrial production, Point Carbon said.

"The European economy grew 2.5% in 2017, leading to higher productivity in European industry, driving up emissions," Point Carbon said. Total industrial emissions were estimated at 797 million mt, an increase of 1.5% from 2016.

Metals, cement, lime and glass were cited as seeing significant emissions growth across the bloc, while oil and gas saw a small decrease.

The drop in coal-fired emissions was also a result of coal-to-gas fuel switching at power plants, according to Trevor Sikorski of Energy Aspects.

"Emissions from gas-fired generation were up by around 13.5m mt year-on-year and lignite emissions [grew] by 4.5 million mt, while coal emissions were 23 million mt lower year on year," Sikorski said in a report.

"Industrial output has seen the highest yearly growth in each of the energy-intensive sectors seen since at least since 2010, with the only exception being refining," Sikorski said.

"While we expect to see modest cross-sector efficiency gains, we think industrial emissions grew by 12 million mt (2.2%) year on year." However, not all analysts agreed that power generation emissions will fall.

Researchers at Bloomberg New Energy Finance predicted a 3 million mt, or 0.2%, increase in 2017 emissions.

"We estimate total EU ETS Emissions from stationary sources in 2017 to be 1,753 million mt," said Thomas Knight, an analyst at BNEF.

Knight said power sector emissions rose in 2017 due to low hydro levels in the Alpine region, while improved production in the steel sector boosted greenhouse gas pollution as well.

The relative decline in hard coal-fired generation was not entirely replaced by renewables, according to Matteo Mazzoni of Nomisma Energia srl.

He saw gains in cheaper, more carbon-intensive lignite generation as the profit from burning hard coal diminished.

"We foresee a slight increase (0.1%) of emissions mainly connected to the rise of demand (0.8%) at EU level," Mazzoni said. "The big drop in coal-fired generation was offset by increases in gas and lignite generation."

Mazzoni predicted an increase of 0.5% in 2017 EU ETS emissions to 1,758 million mt, "based largely on an increase in industrial production, which triggered a 1% increase in emissions from manufacturing sectors".

The modest growth in emissions is unlikely to generate a reaction from the market, Point Carbon analysts said, "unless the actual number differs by more than two percentage points away from market's expectation".

Trading sources said they were not making any predictions on the verified emissions themselves. Many said they were relying on analyst forecasts.

"I do not tend to view [the data] as either bullish or bearish," one London-based trader said. "It has not made much difference to the price in years."

"The market is much better at estimating [verified emission] these days." Energy Aspects' Sikorski concurred. "Prices rarely move on the numbers," he said. "All the information is already baked into prices."

--Fabio Reale,
--Alessandro Vitelli,
--Edited by Daniel Lalor,