COVID-19 & the EU ETS ‘ Redshaw Advisors Webinar Friday 3 April

Webinar Recap: Assessing the Impact of COVID-19 on EUA Prices in the EU ETS

On April 3rd, Redshaw Advisors hosted a webinar featuring Trevor Sikorski, Head of Carbon Research at Energy Aspects, to delve into the effects of the COVID-19 pandemic on Europe’s emissions market and the price of European Union Allowances (EUAs). The discussion aimed to provide insights and analysis despite the complexity and uncertainty surrounding the coronavirus’s impact on global markets.

During the webinar, key questions were addressed, including:

  • What led to the drop in the EUA market and why?
  • How low can EUA prices potentially go?
  • How long is COVID-19 expected to impact EUA prices?
  • Will EUA prices recover, and when?
  • What assistance or challenges can be expected from the European Commission and member states?
  • What choices does the European industry have for managing EU ETS risk?

According to the summary provided by Louis Redshaw, the CEO of Redshaw Advisors, EUA prices experienced a crash in mid-March due to bearish news surrounding the virus’s spread, lockdowns, and stock market volatility. Speculators played a significant role by selling off long positions and hedging put options, which were previously used to finance bets on price increases later in the year. Trevor Sikorski noted that many speculators have already exited the market, with few remaining put options with strikes below €14 per EUA requiring hedging.

Louis clarified that industrial market participants were unlikely responsible for much of the selling activity, as they took advantage of reduced compliance costs by buying EUAs throughout the price decline. However, recent sessions have seen a decrease in buying interest from industries due to uncertainty about future production levels. Short-term support for EUA prices may be provided by a reduced number of auctions over the Easter holiday period.

Trevor’s outlook remains bearish overall, with expectations of low demand persisting as measures to combat the virus continue. EUA prices are likely to range between €15-20/t CO2e in the second quarter of this year. Looking ahead, both Trevor and Louis express optimism for the longer-term prospects of the EU ETS and EUA prices. Trevor forecasts a price rise towards the end of the year, assuming economic normalization by then, with potential for prices to surpass €30/EUA in Q1 2021. Factors such as nuclear closures and the UK’s exit from the ETS are expected to support the market in the coming years.

While acknowledging the downward pressure on gas prices, Louis suggests considering EUA price dips as opportunities to accumulate EUAs for future use. The webinar also featured three polls to gauge audience sentiment regarding the market’s direction.

Overall, the webinar provided valuable insights into the impact of COVID-19 on the EU ETS and EUA prices, highlighting the potential for recovery and the importance of strategic decision-making in the face of evolving market conditions.