Market Development
• Carbon price falls 3.7% to end the week at €7.34
• Largest fall in price occurs on Tuesday as EUR weakens against the USD.
• Power price falls through the week to near record lows.
• MSR loophole may reduce effectiveness of the EU ETS
Auction Overview
• 4 auctions in the week due to bank holiday on Monday. 12.157Mt enters the market through the week.
Price Action
Carbon prices fell 3.7% week-on-week to close at €7.34. Prices fell throughout the week with the high of €7.67 on Monday and the low of €7.25 on Friday to give a trading range of 42c. The main price move was on Tuesday as the EUR weakened against the dollar on aggressive European quantative easing. As highlighted in the previous weeks update, the continued strength of the EUR had helped keep carbon prices high, however, a reversal in the fortune of the EUR put pressure on the carbon price. The weakening EUR leads to EUR denominated coal becoming more expensive, weakening the clean dark spreads. German power also suffered further losses through the week as the price neared record lows and showed little sign of any pick up. With the carbon price drifting and little on the horizon likely to drive it substantially higher it is likely some traders chose to take off some length and lock in recent gains. Price Impact: with the carbon expo conference taking place in Barcelona this week between Tuesday and Thursday it is likely the EU ETS market will be quiet both in trade volumes and price action. With little impact expected from the ENVI vote on Tuesday, save for an unexpected rejection of the proposal, there is little to push prices substantially in either direction. A range bound week seems the most likely outcome. A watchful eye must be kept on the clean dark spreads and it is possible we will see some buying towards the end of the week due to the low auction volume next week when supply drops to ~9Mt.
Market Stability Reserve (MSR)
Reports last week emerged suggesting a loophole in the MSR text could lead to millions of allowances re-entering the market via carbon leakage protection rules. The current MSR text allows the European Commission to decide whether any unallocated allowances, due to go straight into the MSR, should be used for protecting companies from carbon leakage. A decision will be made as part of the review of the EU ETS by the Commission, due by the end of July. Any final decisions will need to be agreed by EU politicians. There is likely to be strong lobbying for generous carbon leakage protection from industrials exposed to competition from outside the EU.
Important MSR Dates
• 26th May – Environment Committee vote on MSR proposal
• 6th July – plenary vote
