Weekly carbon trading update – 24th July, 2017

Market developments

  • Carbon closes down more than 6%
  • Friday afternoon sell off pushes price down to €5.07
  • Close at the low sets bearish tone
  • Coal prices rise, further EUR/USD strength limits gains in EUR
  • Thermal generation in H1 2017 higher than 2016
  • CEFIC predicts carbon prices of nearly €200/tonne
  • California legislators approve an extension of the California ETS

EU Allowance Auction Overview

  • Auction volumes slightly lower this week – 21.5Mt v 22.1Mt last week
  • August auction volume falls to ~44Mt from ~91.5Mt in July

Carbon Forward 2017 Programme has been released, venues announced

LIMITED AVAILABILITY: for installations producing less than 1 million tonnes of CO2 Redshaw Advisors have negotiated rates with up to 70% off! See advert below. Register your interest. This year’s conference will be held at the 5-star Canary Riverside Plaza Hotel in London’s Canary Wharf.

EUA Price Action

Carbon lost more than 6% last week as demand from utilities ran out of steam and speculators seized an opportunity to push prices lower. We questioned the previous week whether utility demand could remain strong indefinitely and we got an emphatic answer last week. On first look, demand in the auctions appeared strong throughout the week but on closer inspection of auction data it appears there was an element of ‘gaming’ with a high volume of low bids making the auction demand look stronger than perhaps it was. Real demand from utilities appears to have subsided, in part caused by large gains in the USD coal price that were only partially offset by a further strengthening EUR/USD. Overall, the clean dark spreads largely moved sideways but with carbon struggling to make further gains it suggests utilities were taking more of a back seat than in previous weeks. Prices remained relatively stable for most of the week, albeit with more of a bearish than bullish slant, until Friday afternoon when an aggressive sell-off led carbon lower. Price Impact: we highlighted €5.50 as an attractive level to go short and the lack of additional upside last week only served to embolden speculators trading short. The close at the low sets a bearish tone into this week…...

Week ahead

The coming week is the last of the full auction volumes before August volumes are halved which would suggest price should see some support. However, if the utilities have pre-bought the August slump and continue to take a backseat until auctions resume in September, we could see a prolonged period of pressure on carbon prices. August auction volumes are 20Mt higher year-on-year and it remains to be seen where the extra volume will find a home. The clean dark spreads remain attractive so all is not lost and recent reports suggest H1 2017 thermal power generation was up (see Other News for more information). If this continues the materially lower prices forecast at the beginning of the year become unlikely. On balance, we have a bearish view going into the coming week.

Other News

California legislators approve an extension of the California ETS until 2030

In an apparent rebuttal of President Trump’s climate change denial, the Democrat led Congress and Senate in California approved the terms for California’s cap and trade system on Monday last week with the help of a few Republican politicians. The reauthorization bill – AB-398 – passed with sufficient majority to avoid any future legal challenges. The main features of the extension are: Lots of price control mechanisms (details yet to be decided), extension to 2030, free allocation to industry to decline in line with the cap and offsets limited to 4%, half of which can come from out of state,


Thermal power generation on the rise in H1 2017

A combination of higher generation returns, lower renewable availability, especially hydro due to the dry winter, and nuclear power station outages have coincided and have caused higher than normal thermal power generation in H1 2017, increasing the demand for EUAs and supporting prices. Early production data suggests gas and coal fired power generation increased through the first half of the year at the expense of cleaner forms of generation, further evidenced by the lack of material EUA prices falls so far through 2017. However, an increase in nuclear power generation across H2 2017, as reactors come back on line, could bring a halt to the rise in thermal generation.

As the biggest emitter in the EU ETS, production and hedging data from utilities is closely monitored as they typically determine the direction of travel for prices.


The European Chemical Industry Council (Cefic) predicts carbon prices of nearly €200/tonne

Cefic have predicted carbon prices of nearly €200/tonne as part of its work towards understanding what is necessary to achieve carbon neutrality in the chemical sector by 2050. The Cefic report is a roadmap to carbon neutrality, setting out potential pathways and costs to implementation for the sector.

The chemical sector lobby group have identified a number of low carbon technologies at an advanced stage of development and believe the industry need to find a way to incorporate them into existing processes to avoid crippling carbon prices. However, the industry already faces strong competition from the U.S where energy prices are considerably cheaper.


Carbon Forward is back and Redshaw Advisors announced as official partner

The EU ETS is changing and those with most at risk, industry and aircraft operators, are in most need of understanding the impacts of the changes. The Carbon Forward 2017 conference will, with the help of a line-up of expert speakers, examine the issues affecting companies with exposure to the EU Emissions Trading System (ETS) and provide some answers. The conference will focus on:

  • Brexit – the effect on EUA prices and UK emitters
  • Carbon price rises – how the Market Stability Reserve changes everything
  • Free allocation – how the Phase IV (2021-2030) review impacts your bottom line
  • Advice – how to maximise free allocation and receive grants for new technology

EU ETS emitters are already expected to foot the bill for Europe’s flagship emissions reduction programme so to help reduce the financial burden Redshaw Advisors have negotiated special discounts for you. .

Interested in attending or finding out more? Fill in your details here and you will receive regular updates on the latest speaker announcements, program developments and special offers. More information can also be found at www.carbon-forward.com.

Alternatively, if there is something you would really like to see in the conference program please drop us an email with your suggestion(s) and we will let you know what we can do to make it happen.