by Katie Holliday

Risk.net  January 28, 2010

A surplus of European Union Emission Allowances (EUAs) sales from Bulgarian companies triggered by a pending European Commission decision could put downward pressure on carbon prices, say experts.

Bulgaria is the last remaining country under the European Union Emissions Trading Scheme (EU ETS) yet to have its installations connected to the Community Independent Transaction Log (CITL).

The EC is expected to authorise the connection by mid-February and, as a result, Bulgarian companies will be able to sell their surplus of EUAs on the international carbon market.

The decision could trigger a potential influx of EUAs on the carbon markets and consequentially drive down prices, according to Emmanuel Fages at carbon project developer Orbeo. "It is probable that these installations, which are not yet connected to the CITL, have an excess of EUAs, which they have not yet sold like the others in the scheme," says Fages. "If we start seeing some flows, we might see a fall in prices."

According to Fages, the level of surplus EUAs could be substantial. "It is hard to anticipate how many sales there will be. Eastern European countries have been over-allocated, so there might be some comfortable margin for them to sell and this will have a bearish impact on prices," he says.

The CITL was connected to the United Nations' International Transaction Log at the end of 2008, linking the UN's Clean Development Mechanism with the EU ETS. The procedure involved the 27 member states of the EU disconnecting their national registries and reconnecting them to the ITL.