The Carbon Market 19.03.2019

The pressure of weakening coal, gas and power prices finally told on carbon, and EUAs closed down yesterday, 18.03.2019, 3% at €21.80.

A large increase in open interest in EU emissions trading system (ETS) allowance call options has been observed in the last days and is likely to have been prompted by a vote in the UK Parliament this week to reject a “no-deal” Brexit. The options buying is likely to have been triggered by a UK parliamentary vote on 13 March, held in the evening after the market had closed, which resulted in members of Parliament (MPs) voting to rule out the UK exiting the EU without a deal.

The vote outcome appeared to reduce the risk that the UK will crash out of the carbon market on 29 March, which would be the default scenario under a no-deal Brexit. A no-deal scenario is widely considered to be bearish for EU ETS fundamentals, as UK emitters could sell 50mn-70mn allowances back to the market as they would no longer need these permits for compliance.

By removing the prospect of a no-deal Brexit — at least temporarily — the vote created more bullish sentiment among EU ETS market participants, and triggered the increase in open interest.

For Tuesday, 18.03, we are neutral to bearish: EUAs ended the day back within their key support area at €21.70-21.85 and this may offer some support early tomorrow when trading resumes.

Source: AitherCO2 and Carbon Reporter, London