Market Developments
- EUA carbon price closes the week at €8.51, up 11c week-on-week
- Price falls away from mid-week high of €8.64 but further gains expected
- Power and coal also rise but clean dark spreads still near multi month lows
- To avoid leakage in the cement sector France seeks inclusion of importers in EU ETS
- UK government ups carbon price ‘forecast’
Auction Overview
- 075Mt comes to market this week in five auctions
- Volume falls to 32.747Mt in December, down from 59.828Mt in November, due to Christmas shutdown. Last auction 17th
EUA Price Action
The EUA price closed at €8.51 on Friday, a week-on-week rise of 11c (1.3%). As expected in last week’s ‘trading market update’ EUA prices rose however by the end of the week they had fallen away from the high of €8.64 set on Wednesday and Thursday. The EUA market was able to post a weekly gain despite plentiful fresh supply with 6 auctions (5 EUA, 1 EUAA) bringing 15.647Mt to the market. Prices fell back from the highs on Friday as German power prices gave back some of the gains it had built up through the week. Coal also rose week-on-week and coupled with a low EUR/USD exchange rate clean dark spreads were kept at multi-month low levels. Price Impact: The market again soaked up a full week of auction volume despite another week of bearish conditions (lower clean dark spreads, falling power prices, weak Euro and a general risk-off approach in light of the events in Paris two weeks ago). On balance and absent major unexpected events we therefore expect that there is more of the same to come and prices will drift higher.
France raises the idea of cement importers facing EU ETS compliance
France has raised the idea of forcing companies importing cement to Europe surrender EU allowances to cover the production. This would mimic the EU ETS cost implications faced by those captured under the EU ETS and remove the need for carbon leakage protection for the industry (indeed it would remove the need for any free allocation at all). The move is not likely to gain a lot of traction due to fears of a wider trade war and the World Trade Organisation deeming it a protectionist tax. That said, the countries that Europe imports cement from are limited to Ukraine, Russia, North Africa and Turkey. The cement industry is likely to be keen on any policy that helps level the playing field with its carbon leakage status potentially under threat in the Phase IV proposals so it will be interesting to hear their, and others’, reaction to this proposal. We will write more about this during the course of the week so check out our ‘News’ page for further updates.
UK raises its carbon price expectations
The Department of Energy and Climate Change (DECC) have raised their carbon price expectations for Phase IV of the EU ETS in light of recent policy developments and the continued push to meet the 40% reduction target by 2030 (of which 43% is expected to come from EU ETS covered sectors). With the central price forecast of £13.78 (~€19.50) by 2021 and a high price forecast of £46.89 (~€66.50) for the same date the government analysis of the impact of carbon policy results in markedly higher prices than current levels. Prices are forecast to continue rising through Phase IV with a £78.45 (central) and £117.68 (high) forecast for 2030. The central views are, over the duration of Phase IV, considerably higher than the independent research analysts’ price forecasts, the ‘high’ UK government forecasts will come as a bit of a shock to most. With an ever changing market and forecast price rises, the need for carbon consultancy and risk management services has never been higher. Please contact us to discuss our services.
The week ahead
Carbon faces a third week in a row of full auctions which has kept fresh supply plentiful in recent weeks. Contrasting this, December’s auctions bring just 32Mt to market as the last auction of the year takes place on the 17th December. Against this backdrop and the rejection by the EUA market of recent weeks’ bearish fundamentals, the grind higher into year-end seems inevitable. Expect some volatility after the auctions end on 17th December.
