EEX May Struggle to Take ICE Carbon Share, Barclays Says

European Energy Exchange AG, appointed yesterday to sell carbon allowances on behalf of the European Union, may struggle to win futures volume from ICE Futures Europe, according to Barclays Plc.

EEX, based in Leipzig, Germany, plans to sell at least 250 million metric tons of permits valid for the third phase of the region’s emissions trading system on behalf of 24 of the 27 EU member states from the end of October, according to a statement on the EU’s website. They are valued at 2 billion euros ($2.6 billion), based on yesterday’s closing prices on ICE.

“The EEX sales will be spot and other platforms which attracted most of the spot sales did find it difficult to take forward trading away from ICE,” said Trevor Sikorski, an analyst in London for the bank. Other exchanges that have offered spot trading include Bluenext SA and Nasdaq OMX Inc.

“It is always a big call to suggest traders will change platforms, once liquidity has been established,” he said yesterday in an e-mailed response to questions.

Starting next year, the EU is moving toward selling about half of its allowances, after having given about 97 percent for free through this year. The eight-year trading period starting in 2013 is known as Phase 3. To limit price shocks as the bloc phases out free allowances, the EU agreed to auction a total of 120 million Phase 3 permits and 30 million aviation allowances for airlines this year, before the next period begins.

“In relative terms, the EEX will certainly increase its market share in EUAs from the auction churn,” Konrad Hanschmidt, an analyst in London for Bloomberg New Energy Finance, said in an e-mail.

“This does not necessarily mean however that ICE will see its absolute volumes drop,” he said yesterday.

ICE Share

Both EEX and ICE will probably boost trading as the market grows, he said.

ICE, which lost the tender to EEX, handled 5.4 billion tons of EU allowances last year, about 84 percent of the market, according to data from Bloomberg New Energy Finance. The EEX handled 81 million tons of futures and 25.6 million tons of spot contracts, according to a Jan. 12 statement.

ICE will remain attractive to carbon traders because that exchange has liquid markets in related markets, such as natural gas and coal, said Matteo Mazzoni, an analyst for NE Nomisma Energia Srl in Bologna, Italy.

More competition from EEX may prompt ICE to develop new products, such as German power, Mazzoni said yesterday. EEX already offers such contracts.

“That’s more likely than competition based on fees,” he said.

Germany, Poland and the U.K. opted out of the joint sales that will be handled by EEX and will offer their portion of supply independently. The U.K. has selected ICE Futures Europe to carry out its auctions, while Germany will sell its permits through EEX from early next month. Poland is yet to select a venue.

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