The EU ETS Market 11.09.2019

The CO2 Price

The carbon price experienced a large oscillation this week, falling on Monday, 09.09.2019, below 25 euro/EUA on the ICE ECX exchange in London and returning today, Wednesday, 11.09.2019 til 27.25 euro/EUA.

The causes of price fluctuation are multiple:

  • a weaker energy complex;
  • resuming normal auction volumes after reducing the volume by 50% in August;
  • the first European Parliament sessions after the holiday;
  • the uncertainty of Brexit.

Brexit and its effects

On Tuesday and Wednesday, last week, the British House of Commons passed a law that will force the PM Boris Johnson to ask the EU for a third Brexit delay until 31 January. The increased likelihood for the UK to reach a divorce deal lifted carbon.

The Brexit issue drags on and has not gotten closer to any conclusion. On 28 August, UK Prime Minister Boris Johnson announced that the British parliament will be suspended from 12 September to 14 October, as opposed to the planned closure from mid-September to 7 October due to Labour and Tory party conferences. Therefore, the carbon price is expected to respond stronger in September when the market gets a clearer view of the Brexit outcome.

There was also some speculation over whether the UK would be granted with another extension to the Brexit deadline to 31 January 2020. Numerous sources pointed out an extension into next year would very likely require the UK to carry out compliance for 2019.

Source: ICE ECX and AitherCO2

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The EU ETS market

Here are the most relevant news items in the carbon world to help you make informed decisions as you build your emissions allowances strategy.

EUAs cuts around 37% in the final four months of 2019

EU allowance auction volumes will be cut around 37% in the final for months of this year, sales host announced on 11th July, as the MSR removes a further 117,6 million EUAs from the market this year. This is  the main fundamental for continuing the increase trend of the EUA price. For the first time in 11 years, the price was more than 28 Eur, ending at 28,47 Eur/EUA on 16.07.2019, determined especially by the German government announcement that it would be willing to cancel free permits as part of its plans to phase out coal-fired power plants. Support levels can be seen at 28-28.50 Eur/ton.

EU ETS emissions fell 3.9% in 2018

The EU Commission data shows that EU ETS emissions fell by 3.9% in 2018. Industrial installations and aircrafts emitted a total of 1.75 billion tonnes of CO2. This is a positive sign considering that emissions in 2017 were on the rise. The aviation sector’s output on the other hand is still escalating as ETS emissions rose by 3.9% for a fifth consecutive year. Industrial installations however registered positive gains as emissions fell by 4.1%.

WOW Air fined €30 Million for EU ETS non compliance

Iceland’s environmental protection agency has imposed a fine of €30 million on the bankrupt airline, Wow Air. This comes after the airline operator failed to pay for last year’s emission allowances upon the April 30 deadline. Wow Air is expected to pay €100 for each tonne of emissions in accordance with the statutory directives. This is the second time this year that huge penalties have been imposed as British Steel faced the same fate in May, paying out a record £120 million for non compliance.

Source: EC Commission, Brussels, ICE ECX & AitherCO2, London

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The EU ETS and other carbon taxes

The London Stock Exchange, ICE ECX, ended the CO2 trading session yesterday, June 12, 2019, at 24.74 euros/EUA amid low energy prices and a lack of auctioning on the market.

However, the IETA report published last week about the expectations of EU ETS market participants in relation to carbon price over the next decade shows an increase in the carbon price to an average of 36 euros/EUA between 2021-2030.

In order to have an overview of the situation of CO2 markets in different regions, compared to the EU ETS market, the World Bank presents the figure below. You will notice that the current carbon price in the European Union is much lower than other carbon taxes imposed in jurisdictions, such as Switzerland or the Nordic countries.

Screenshot 2019-06-12 at 18.40.20

Source: ICE ECX, London & The World Bank

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The CO2 Market 15.05.2019

Carbon prices resumed the upward trend last Monday, 06.05.2019, after the previous week’s brief collapse soon after the compliance period ended. Trading activity started off to a good start selling at a €25.50 high for the day. Tuesday carbon gained 4.2% to reach €26.40 as strong buying at the auction drove up prices. The rally continued all through to Wednesday, testing the €27 barrier by rising 1.9% to €26.95.

The week’s rally did not last much and carbon slight lost value the next day to close down 1.6%. This did not stop it from breaking the barrier and trading well above €27 to a €27.20 high for the first time this month. Prices have been retracing since then, falling 3.3% on Friday, 10.05.2019

This week overall effect of the volatility has been to keep EUAs in a relatively well-defined channel between €24.50-27.50 since the middle of April. The recent sideways evolution of the market suggests traders are waiting for tomorrow’s TNAC announcement before initiating any longer-term positions.

It’s likely that the data will mean the MSR takes in a larger than expected volume of EUAs over the coming year due to the lower verified emissions for 2018. Consequently we retain a flat to bullish outlook for today, with a bullish expectation for Thursday as the market digests the information.

Today’s EUA chart

Screenshot 2019-05-14 at 19.06.11

Source: AitherCO2 and Carbon Reporter, London

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The CO2 Market 16.04.2016

Casiana Fometescu, CO2 international consultant, attended IETA EU Working Group Strategy Meeting in Brussels, representing ALLCOT Group as Business Development Strategist for Eastern Europe. IETA EU-ETS Strategy meeting took place in Brussels on 1-2 April 2019.
IETA Bruxelles 2019
The first presentation was from the representative of the European Commission, DG Climate action, Mrs. Beatriz Yordi, a very open message that the Commission is always open to listen, understand and act towards better climate and business conditions. She emphasized the idea of the stable framework of the EU ETS, the fact that CO2 is becoming one of the largest financial commodity where billions of euro are under trade and other coming funds are now expecting through the ETS Modernization fund. Mrs. Yordi informed that revision of the auction regulation will start soon and IETA will be included in the consultations.

These are the main ideas interesting to point out:

– Under the current new regulations of 2030 target of 40% GHG decrease, in reality a bigger decrease will happen of around 45%, taking into consideration current levels and also the linear reduction factor (LRF) of 2.2%;

– EU Emissions cap on 2030 will be around 1334 MtCO2 compared to the current 1,6 BtCO2. On 2050, the cap will be of just 370 Mt or only 14Mt (if LRF of 2.9% will apply);

– The analysts from Refinitiv pointed out that in the 2050 zero emissions concept target, the EU ETS CO2 price will either rise to 250-300 Euro/tonne or the EU ETS will no longer exist since its functionality might not have any sense;

– IETA pledged to lobby the European Commission to introduce an article in the EU ETS Directive regarding Article 6 from the Paris Agreement and international credits, to let these penetrate in the European market and to ask the EC if they agree with the Article 6 since this article is about linking international markets and accepting ITMOs into regional/national schemes. Thus, linking means the use of international credits into the EU compliance market;

– EUA prices will go up until 2022 or 2023 to reach then 30-35 Euro/EUA and then go down again due to the implementations of RES Directive and Energy Efficiency Directive, and from that date it’s expected to have again an excess of supply;

– Statkraft would like to propose to the EC an increase of MSR (Market Stability Reserve) to 24% and make the intake rate permanent;

– An interesting case was presented: Western Climate Initiative – the linkage scheme of California with Canada provinces Quebec and Ontario. Although, Ontario linked to the WCI on the 1st January 2018, they have already announced that they will exit the scheme this year due to technical and political reasons. Ontario estimate an increase in CO2 price till 40 Euro on 2030 from the current level of 16 Euro, which will destabilise its economy;

– Discussions on Brexit were also tabled, but the case seems too complicated even for UK nationals to foresee which scenario will be adopted, eventually. Yet, a hard Brexit will destabilise the EUA price compared to a Brexit with EU agreement. In the event of a hard Brexit, the idea of linking the future UK ETS with the EU ETS is an option.

– Switzerland approved to link its ETS with the EU ETS and implementation is expected to happen at the beginning of the next year.

Source: IETA, Brussels

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The CO2 Market 27.03.2019

EUAs continued Monday’s slow and steady rise, closing 2.9% higher at €21.55. Carbon kept pace with German power, while gas rose 1.4% and coal advanced 1%.

While prices have risen by more than 4% since Friday, there doesn’t seem to be much conviction to this move. Block trades continue to account for nearly half the total volume on ICE Futures (nearly 17 million EUAs yesterday), which suggests investors and utilities are managing their positions quite actively, but screen volume is trending lower since the start of the year as Brexit continues to weigh on the market.

Today, UK Parliament will hold a series of “indicative votes” on various alternatives to the existing agreement. These votes are not binding on the government, but will demonstrate what option Parliament may support. However, it’s not at all clear whether:

a) the government will adopt the favoured alternative and seek to re-open he withdrawal agreement, or

b) the European Union would be willing to re-open talks on the withdrawal agreement.

Our outlook for tomorrow is therefore neutral. It’s seems likely that the market will continue to grind higher in the absence of any change in fundamentals. However, it’s likely to be a quiet day as traders focus on events in Parliament.

We note that EUAs today rose from just above the 50% Fibonacci retracement to just below the 38.2% retracement of the February-March rally. So resistance at €21.58 will be tested very quickly, and a move above would then target the €21.80-21.85 band that has acted as a support area most recently.

EU ETS News

·      Linkage between Switzerland and EU ETS systems approved to be effective from the 1st January 2020

·      EU Parliament accepts proposal to increase emission reduction goal to 55% for 2030, boosting the current target by 15%

·      IETA (International Emissions Trading Association) will organize a meeting in Brussels on the EU ETS Strategy on the 2nd April 2019, and our CO2 international consultant, Casiana Fometescu, will be present at this event and will report you the upcoming news on the market.

Source: Carbon Reporter, London

 

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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.

Screenshot 2019-03-19 at 10.28.55

Source: AitherCO2 and Carbon Reporter, London

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The CO2 Market 11.03.2019

The EUA market traded last week within the range of 22.04-23.17 Euro/EUA.
The bullish sentiment that designed the market in the last few weeks is slowing down.

From the one hand, Brexit concerns are starting to enter into consideration in particular now that a no-deal Brexit is taking shape for the next future. In particular, the compliance deadline for UK operators has been anticipated to the end of this week, 15 of March 2019, and it is very likely that most of the operators have already purchased the units they needed for next Friday deadline.

In terms of bearish sentiment, we can also say that must-run capacity from gas-fired combined heat and power (CHP) and increasing coal-to-gas fuel switching has put German power sector gas burn on track to exceed coal-fired generation this week for the first time for any week, without at least one public holiday so far this decade. Moreover, with coal-fired generation likely to reach a decade low for a working week, there has been ample larger barge availability at Amsterdam-Rotterdam-Antwerp (ARA), even with Rhine levels rising and barge rates falling in recent days — suggesting coal-fired plant stocks are amply filled.

In this scenario, we do not expect a strong bullish market for next week, but a market range between 21.50 and 23 Euro/EUA.

At present time, the EUA is traded 22.37 Euro/EUA.

Source: AitherCO2, London

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The Carbon Market 06.03.2019

EUAs spent most of the day bubbling just under the €23 mark. Prices made three attempts to move above this level but failed. Consequently, traders started to sell by around 16.30 CET and levels dropped sharply through to the close. Carbon ended the day down 3.6% at €22.11, just a cent above the day’s low.

The €5 price rise over the last past eight days proved too attractive to pass up for the market, and speculators cashed in. The rally may well be over for now, but the continued absence of investor selling (as opposed to speculators) suggests that the gains of the last week may well be consolidated rather than given up.

Two days ago, Bloomberg New Energy Finance has published new analysis in which it forecasts that the Total Number of Allowances in Circulation (TNAC) will shrink from 1.686 billion EUAs in 2018 to 1.465 billion in 2019. the implication is that net demand for EUAs from the surplus will come in at around 278 million EUAs.

Distribution of free EUAs for 2019 is now well under way, with member states having completed more than 60% of their allocation for the year. This may dampen market demand from continental installations who may be tempted to borrow from their 2019 allocation rather than pay the current high prices. Yet, compliance season continues, and while industrials may have become more proactive in their risk management, there are still enough installations that continue to pursue a “once-a-year” buying strategy to suggest that underlying demand will remain reasonable.

Today’s chart

Today’s close at the day’s low suggests that there is still some selling to come, so we should anticipate further weakness on Thursday morning at least. We’re back within range of the €21.83 support that held firm in mid-January and early February. Below that the region around €20.55 offers some support, and finally the strong € 19 support is not an impossible target either.

Screenshot 2019-03-06 at 20.24.33

Source: Carbon Reporter, London

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The CO2 Market 04.02.2019

Volatile CO2 Price and Increased Demand

Today, 04.02.2019, carbon successfully defended the support at €21.36 before embarking on a rally that gained momentum as the day drew on, and eventually climbed back above €22.00. EUAs closed up 4.8% at €23.05. Carbon’s advance was in contrast to power and gas which both retreated by 0.5%, and coal which shed 1.4%.

Supply of 10.6 million EUAs at auction this week is sandwiched between two weeks where more than 15 million allowances are being sold, and this pattern will repeat itself throughout the year. Today’s sale saw 105 separate bids, well above the average of any month since last summer. In addition, January saw an average of 30 bidders participate in each EEX auction, the highest on record.

It’s clear from this data that demand is healthy, if not increasing, and it will be worth watching auction results in the coming month to see if the market has been encouraged to buy while prices remain below recent highs.

Today’s chart

Technically, Friday 01.02.2019 and today’s price action (04.02.2019) completes the “double top” pattern that takes in the respective peaks of January 1 and January 23. The decline since January 23 has reached parity with the drop that ended on January 10, and today’s gain may possibly be the start of a renewed rally. However, we would be cautious before setting a price target, and today’s move needs to be consolidated first.

Screenshot 2019-02-04 at 20.17.08

Source: Carbon Reporter, London

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