Market developments
- Energy Aspects materially revise their price forecast
- Little change for carbon prices as the week closes at €5.15, down 4c
- Carbon struggles to significantly advance on recent highs
- Euro Clean Dark Spreads remain strong as EUR strength tempers coal gains
- Phase IV trilogue meeting delayed
- US withdraws from Paris Agreement
EU Allowance Auction Overview
- Similar auction volume as ~17.9Mt comes to market versus ~17.3Mt last week
- June auction volume similar to May (~83Mt) as public holidays continue to fragment auction calendar
Carbon Forward 2017 Programme has been released
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EUA Price Action
Carbon prices failed to build on the previous week’s gains as the week closed more or less flat at €5.15. Having set a new high of €5.22 on Monday, carbon ran into resistance as prices headed back below €5. The losses were limited because support was found from utility buying interest and carbon ended the week testing the highs once more. The relatively narrow 25c carbon trading range and near-flat close suggests the market was more-or-less in balance last week as utility buying was equalled by the auction volume on offer plus-or-minus speculative selling. The Clean Dark Spreads (CDS) remained at recent highs as the strength of the EURO helped to temper coal price gains and will likely remain key to future price direction. Price Impact: the resistance around €5.20 appears to be strong as carbon has tried and failed to break it several times. The resistance may hold strong, however, if it is broken it may lead to some quick fire gains as speculative sellers targeting that level close out carbon trading positions and fuel the buy side.
Week ahead
Much of the recent gains have arisen as the CDS hit year-to-date highs and utility hedging kicked up a gear. Continued CDS strength could lead to further gains, especially over the next week or so as the auction schedule remains lower than normal. However, at some point the utilities will step back from the market, the timing of this eventuality is crucial. If it coincides with higher auction volumes coming in the next few weeks it will be hard to see the market cope with the weight of supply. For now, the resistance around €5.22 holds the key – should there be a close above this level a rise to €5.50 will be in focus. However, a repeated failure to overcome the resistance will likely turn the market’s direction lower as speculators cast an eye forward to July’s auction glut.
Window of opportunity? The compliance deadline is out of the way for everyone for another year but the real carbon risk, MSR-induced price change, doesn’t go away so conveniently. The medium-term outlook for carbon prices is bleak but Energy Aspects’ longer term forecasts tell us that they are set to move substantially higher. To discuss your exposure and how we can help you get on top of it before the market reacts to the MSR’s start in January 2019, feel free to get in touch: info@redshawadvisors.com
Other News
Energy Aspects revise forward price forecasts following BREF legislation
Energy Aspects have materially revised their price forecasts following the adoption of BREF legislation that looks likely to force the closure of European coal and lignite power plants. The legislation comes into force in 2021 and will place limits on SOx, NOx and Mercury production. In order to comply, coal fired facilities will either have to retrofit new technology, apply for a derogation or shut down. Energy Aspects estimate 80GW out of the current 142GW coal and lignite supply across Europe will struggle to comply with the new limits, potentially creating a huge dent in the demand for EUAs.
Our customers are eligible to receive Energy Aspects’ reports and price forecasts for free. To discuss the impacts of this development on your exposure to carbon risk, please call the Redshaw Advisors team on +44 (0)203 637 1055.
US withdraws from ‘unfair’ Paris Agreement
US President Donald Trump will withdraw the US from the Paris Agreement, labelling it unfair. President Trump has pledged to re-enter the accord if he is able to re-negotiate new terms for the world’s second largest polluter, a move met with derision from world leaders. The Paris Agreement, the first climate agreement with the backing of all the world’s superpowers, seeks to limit global warming to 1.5oc and will continue despite America’s absence with China and the EU pledging to boost their commitments to cover the hole left by America.
The impact on the EU ETS is likely to be minimal but may give rise to further ambition if the EU, along with other nations, look to plug the gap left by the US. Price signal measures are not expected to be weakened. However, such protectionist moves are also likely to strengthen the calls from European industry to receive more free allocation in Phase IV for protection against carbon leakage.
Phase IV review stalls as trilogue meeting cancelled and rapporteur MEP Ian Duncan relinquishes role
Progress in the Phase IV review has stalled as the trilogue meeting scheduled for last Monday, 30th May, was cancelled and MEP Ian Duncan subsequently quit his role as rapporteur. Duncan, currently seeking election to the UK parliament, has passed the role of rapporteur over to fellow Conservative MEP Julie Girling who will now seek to guide the reform through the final stages.
It is unlikely the change in rapporteur has a material effect on the final legislation, however, the chances of a deal before the summer recess now appear slim.
Carbon Forward is back and Redshaw Advisors announced as official partner
Redshaw Advisors are pleased to announce that we will once again be the official conference partner and training day provider for the annual Carbon Forward conference to be held in London on 26th-28th September 2017. The conference will give carbon market participants from all over the world a greater understanding of the risks and opportunities they face in ever-changing carbon trading, regulation and taxation.
Brexit, the ‘Trump factor’, an ambitious Phase IV reform package, the Chinese ETS launch in 2017 and the development of a global offsetting system for the aviation industry mean carbon risk is higher than ever. To successfully manage this risk companies need a thorough understanding of how carbon markets and regulation across the globe affect them and their competitors, Carbon Forward is designed to provide that understanding.
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.
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