Weekly carbon trading update – 31st July, 2017

Market developments

  • Carbon closes up 12c, a 2% gain
  • €5.19 close in the middle of the small 23c weekly range
  • Strong auctions help push carbon away from the lows
  • Falling power and rising coal prices dent the clean dark spread returns
  • Court sides with European Commission free allocation calculations
  • Fossil fuel subsides lead to much higher healthcare costs

EU Allowance Auction Overview

  • Auction volumes dip significantly to ~13.2Mt from ~21.5Mt 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 moved in a tight range last week but ultimately closed 12c up at €5.19. The low 23c range coincided with the start of the European holiday season. The week started by testing further downside but support was found in the auctions that, unusually, registered clearing prices above the secondary market all week, bar Friday. The strong clearing prices demonstrated robust demand and pushed prices steadily higher through the first half of the week. However, the demand was not strong enough to move carbon substantially higher and the gains were capped at €5.28. The gains were reversed into the end of the week as the demand faded away. Friday’s auction cleared 6c below the market, potentially signalling that last week’s buyer(s) had bought what they needed. Prices headed back down to the low of the week at €5.05 before rallying through the afternoon into the close. Away from the strong carbon auctions there was little to support prices as power fell while coal and carbon gained, taking 6-8% off the clean dark spreads and dampening utility interest. Larger falls in the CDS were once again avoided thanks to the EUR strength against the USD. Price Impact: the last full week of auctions before half volumes through August has resulted in steady gains. The lower auction supply through August will provide support but the big question mark is around the level of demand during a typically quiet period.

Week ahead

We called lower prices last week but the market went up. Coupled with unusual auction activity that ran out of steam on Friday we assume there was a single buyer in a hurry to buy what they needed who was done by Friday. Price influences are a mixed bag as lower auctions collide with European holidays. The auction schedule is well documented and will not catch out any seasoned carbon traders but the behaviour of the utilities comes sharply into focus through this period. Typically, August sees long periods of range bound trading and low volumes but thin markets are susceptible to volatility. Assuming static year-on-year demand, prices will struggle to maintain recent levels as the August auction volumes are 20Mt higher this year. However, carbon’s recent strength has been led by utilities experiencing ongoing nuclear unavailability and persistent low hydro generation across Europe. We have a neutral price outlook for the coming week with a good chance of volatility.

Other News

The European Court once again sides with European Commission over allocation objections

The European Court of Justice has once again sided with the European Commission (EC) in the latest of a long line of objections to the way the EC distributes free allowances in the EU ETS. In a case brought by ArcelorMittal the steel maker argued the benchmark and subsequent free allocations were not an accurate reflection of their operations in France.

The ruling sided with the EC and found it to have used correct and accurate data in its calculations.

Fossil fuel subsidies lead to disproportionate healthcare costs

The subsidies handed out by G20 countries to fossil fuel production amounted to $444bn in 2014, however, the healthcare costs associated with the use of the fossil fuels was more than six times higher at $2.76tn according to a new report by Choose Health and the Health and Environment Alliance.

The paper adds yet another voice to the call for a phase-out of fossil fuel subsidies by 2020. It says that the funds should be diverted to aid the renewable energy transition and improve existing healthcare.

The findings highlight the confused approach to climate change by governments across the world.


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.