The EU carbon market – 19.01.2022

EU Allowances (EUAs) have endured volatile weeks at the beginning of January with prices bouncing between €78.85 (18.01) and €87.15 (05.01), with significant daily price movement >€3.

EU Legislative Proposals

Policy was once again in the news, firstly following a leaked draft amendment on Wednesday, 12.01.2022, that appeared to suggest the inclusion of shipping, buildings and road transport should be included a year earlier, and then the EU Parliament’s environment committee backed a proposal to keep the Market Stability Reserve (MRS) withdrawal rate at 24% (it was due to fall back to 12%).

This bullish policy news, coupled with the announcement that EDF expects to generate less nuclear fired power in 2022 after faults were discovered in several of its plants, pushed EUAs up to an intraday high of €83.75 on 14.01.2022, then falling back to €82.67, the ICE ECX closing price of yesterday, 18.02.

Whilst the chance of prices returning to €90 seems to be reducing as the demand outlook softens (less investor appetite), the EU carbon market is trading on much lower volumes currently which does make it susceptible to sharp price rises and sensitivity towards news and events that impact the energy complex.