Market Development
• Another lacklustre week as price action and volume were particularly subdued
• Traded volumes well below the average
• Widening clean dark spreads may put some life into market
• Latvia proposes new compromise on unallocated allowances
• Italy, Poland and Finland still to hand out free allowances
Auction Overview
• A lower 13.446mt enters the market this week in 5 auctions. (11.952mt EUA and 1.494mt EUAA)
Price Action
Carbon ended the week at €6.88, down 10c, on the front December contract after another week of below average traded volumes. A 24c trading range was also well below the March average weekly trading range of 59c. With a full week of auctions the supply coming to the market was plentiful but seemingly absorbed by the market with little drop off in price. With some additional compliance buying at this time of the year as the compliance deadline looms, the market appeared to be in balance. The clean dark spreads provided some price support towards the end of the week as the Euro strengthened against the Dollar to make coal denominated in Euro’s, cheaper. This was particularly prevalent towards the back end of the curve as the 2017 and 2018 spreads widened the most. This might well encourage some utility hedging as they look to lock in profits on forward power sales. In the latest update from the EU commission, several countries including Italy, Poland and Finland are yet to hand out their free EUA carbon trading allowances for 2015. The EUA carbon trading allocations handed out in the last two weeks have been minimal. It is possible some installations had intended on borrowing the year ahead free allocation for their 2014 compliance, our experience is that a number of companies facing compliance shortages for the first time this year are choosing this path. If next year’s free allocation fails to materialise in time for the 30th April deadline they will be forced to enter the market. Price Impact: there are a number of bull factors coinciding with the start of this week: lower auction week, positive German and French comments re the MSR, Latvian progress towards compromise, everyone back from Easter holidays, clean dark spreads drifting up and the last minute rush for 30th April compliance. Discussions on Latvia’s latest MSR proposal, discussed below, may bring some volatility back to the market.
Market Stability Reserve (MSR)
Latvia released a new MSR proposal last week for discussion and debate in trilogue. The major change to the proposal was the fate of the unallocated allowances which under the latest proposal will go straight into the MSR. This is likely to be a move aimed at appeasing Western European states who have sought an ambitious MSR start date which, so far, have been blocked by a minority of states, led by Poland. The proposal will see the unallocated allowances join the backloaded allowances in the MSR but will give the EU Commission the chance to come up with a proposal on their fate once they are in the MSR. Under existing law the unallocated allowances were scheduled to be sold in the 2 years following the phase end in 2020. The proposal is due to be discussed tomorrow, 21st April, 2015, by member state officials at an EU Council environment working party. They will aim to get this signed off for trilogue negotiations at a Coreper meeting on 29th April, 2015.
Important MSR Dates
• 21st April – Environment working party
• 29th April – Coreper meeting
• 5th May – trilogue meeting
• 26th May – trilogue meeting
• 6th July – possible plenary vote
Offset Carbon Credit Price Rises As EU ETS Compliance Deadline Looms
The price of offset credits, which can be used for compliance by some companies covered under the EU ETS, rose by as much as 45% in the last two weeks.
