Weekly carbon trading market update 
Market developments:
- Carbon price gains 34% over the holiday period
- €1.67 added to the price as carbon closes 2016 at €6.57
- Thin market conditions and no auction supply combine to push prices higher
- Power price also provides additional impetus
EU Allowance Auction Overview
- The first 2017 auction is on 9th January in a big week that brings ~22.4Mt to market
- Failed UK auction volume will be split between the first 4 UK auctions in 2017, taking the volume in each auction to ~5.14Mt from ~4.27Mt previously
- See auction table below for more details.
EUA Price Action
The holiday period EUA trading led to large increases in the price as a lack of auction supply and rising power prices helped propel carbon above €6.50. We had previously warned the lack of auction supply left carbon price risk skewed to the upside as buyers have a greater impact on the market than usual. It is likely the full working week before Christmas also contributed to the gains as it was possible for installations to get trades settled before the holiday period commenced. Speculators will also have played their part as traders sought to boost profits before year end and take advantage of thin market conditions. With traded volumes low, the small amount of buying was enough to send prices to a €6.58 high on 30th December. Power price rises also provided further impetus to carbon as power rises outstripped coal. EUAs closed 2016 at €6.57, down ~21% year-on-year but some way above the €3.87 low of 2016. Price Impact: the market was likely trading relatively flat as the EU ETS auction shutdown commenced following the November sell off and subsequent buy back in early December, the lack of length in the market means sellers will likely have been more limited than usual.
Week ahead
As we enter the final week without auctions all eyes will swiftly turn towards next week and the auction resumption. The failed UK auction at the end of 2016 means the volume is added to the first 4 UK auctions of 2017, further increasing the supply. The auction volumes are already significantly higher due to the end of backloading which means 200Mt more will be auctioned through 2017 than 2016. It is hard to see carbon trading prices maintaining current levels and early trading in 2017 would suggest prices will head lower in the short term with pressure on the price likely throughout 2017.
