Market Development
- Carbon prices close the week at €8.09, down 3c from previous week
- Robust support found as the price tests €8.0
- SEI releases a study that 80% of the Kyoto Protocol’s ERUs used during Phase 2 had low environmental integrity
- Redshaw Advisors are hiring
Auction Overview
12.9Mt comes to market this week in four EU auctions and one EUAA auction.
September brings in second highest auction volume of the year at ~63Mt.
Price action
Last week saw a modest fall in carbon prices to €8.09 on the front December contract, a week-on-week fall of 3c. This was the first week of auctions after the reduced volumes of the August break. The auctions last week had relatively low cover ratios compared to August but they were essentially Business as Usual when compared to the more ‘normal’ month of July. EUA prices dipped below the €8.00 mark on Tuesday and Wednesday, yet each time the market provided support as participants took advantage of being able to source cheaper volume. The energy complex as a whole remained weak and the world continues to watch the developments in China. The Euro remained a safe haven currency until Mario Draghi, the head of the European Central Bank, tried to weaken it in a televised monetary policy speech late last week. Fundamentals remain supportive in the prompt year clean dark spreads, power dropped but coal dropped further (in EUR). The market’s bears were left scratching their heads this week as the return to full auctioning didn’t pressure the market downwards as much as expected. However, in their support, this week will be a more relevant test as any utilities that delayed purchases over August will likely have topped up reserves by now and full auctioning will have a chance to have an impact, if any.
Price Impact: Carbon remained supported in spite of the wider market volatility and weak energy fundamentals. Keep an eye on the €8.00 support level, a close through it may indicate that full auction supply is having an effect. As noted last week, despite the weakening global economic outlook, Energy Aspects’ in Friday 31st August’s monthly Carbon Outlook (contact us if you are not receiving this), have not changed their longer term price expectations which may at least partly explain the lack of bearish follow-through last week. Carbon, at the moment, seems immune to the bad news everywhere else.
Market Stability Reserve (MSR) update
The MSR has passed all but one legislative hurdle, the last one is expected to be a formality and thus a fully operational MSR, reducing auction supply by 12% per year of the total over-supply, will come into effect in January 2019. You can read more about the MSR here. Important MSR dates:
18th September – EU Environment Minister endorsement
SEI releases a study that 80% of the Kyoto Protocol’s ERUs used during Phase 2 had low environmental integrity
The Stockholm Environment Institute (SEI) released a study reporting that 80% of the Kyoto Joint Implementation (JI) Emission Reduction Units (ERUs) that developed nations used to meet their climate targets came from projects with ‘questionable or low environmental integrity’. SEI says the use of the JI mechanism may have led to GHG emissions 600mn t CO2e higher than they would have otherwise been. This calls into question the use of international offsets in emissions trading schemes and weak national mitigation targets prompting the need to create a robust framework for the Paris negotiations later this year. Contact us is you have any concerns about the quality of CERs that you plan to use for compliance in 2015. We are sourcing carbon with excellent Social Responsibility credentials for a number of companies.
Redshaw Advisors make a video and are hiring
If you know someone that might be interested in a Sales Executive job at Redshaw Advisors then please forward our recruitment website link to them. If you want to know more about what we do please take a look at our new corporate video here and get cheered up by the soundtrack!
The week ahead
There is certain a ‘back to school’ feel to the market with auction volumes now back to normal and people returning to work after the summer break. Keep an eye out for an EUA price close below €8.00 which may herald more weakness to come. The Chinese stock markets seem to have stabilized somewhat, yet wider economic uncertainty remains.
The European Council’s Working Party on the Environment will hold a preliminary session to discuss post-2020 ETS reform this week, no conclusive opinions are expected.
Keep up to date with major carbon market developments
Follow us on Twitter and LinkedIn or click on the NEWS image for Redshaw Advisors’ view of the most important events impacting the EU and world carbon markets.
Upcoming Conferences
The Energy Event – 15th – 16th September 2015 (Birmingham) – Redshaw Advisors speaking
UN Conference of the Parties (COP 21): 30th November 2015 – 11th December 2015 (Paris)
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