Friday spotlight: CO2 climbs ahead of key EU decisions

EU policy is expected to provide direction for carbon prices in the coming week, as the EU will decide the ambition of its long-term climate targets as well as composition of the new European Commission.

The European Parliament will cast its vote on the new commission on Wednesday 22 October, closely followed by the European Council deciding the 2030 target in the second half of the week.

Spain’s Miguel Arias Canete, who has pledged support for the EU emission trading system, has been put forward for the climate action and energy group in the new commission. Approval of the commission could provide brief support for carbon prices on the day, as this also means discussions on market reform can be restarted.

Market participants on Thursday said that they expect carbon to break through the €6.25/tCO2e resistance level in coming sessions.

However, the 2030 targets could put pressure on carbon, which has enjoyed a bullish run in recent sessions, as the Council is expected to back multiple targets in addition to a de-carbonisation goal. Putting in place a binding renewable energy target, for instance, could be particularly bearish for carbon.

Bullish trend

EU carbon prices climbed steadily over the period of 10-16 October, a week with further revelations around the future of EU climate policy.

The benchmark EU allowance (EUA) contract closed at €6.04/tCO2e on 10 October but ended up €0.17/tCO2e higher on 16 October.

For much of the week there were no changes on the regulatory or fundamental side so the market was guided by technical trading.

EUAs gained on Wednesday after a UK official hinted that the country’s government could back an earlier start date for an EU emissions trading system reform mechanism that is likely to cause an initial price rise.

Elsewhere, a leaked document suggested that a likely agreement on EU 2030 climate and energy targets includes a binding 27% renewable energy goal, an indicative 30% energy efficiency improvement aim and a 40% cut in greenhouse gas emissions.

The EU is set to agree the targets on 23-24 October. Ben Lee/Marie-Louise du Bois