Friday spotlight: Prices edge up on policy

25 July 2014 07:37 Source:ICIS

European carbon prices failed to close below €6/tCO2e over 18-24 July as they were supported by comments from EU officials in support of emissions trading system (ETS) reform and a positive auction outcome.

Week on week, prices were up marginally. EU allowances (EUA) started the period on a bearish note as prices corrected downwards amid profit-taking. Before this, speculators had been buying up carbon permits prior to an EU meeting on the proposed market stability reserve, a reform tool to better regulate supply in the bloc’s oversupplied ETS.

However, on 21 July prices began to lift slightly due to positive demand at auction and falling coal prices. Cheaper coal prices gives utilities greater incentive to run more polluting coal plants which would require a greater number of emissions permits to cover the pollution.

On 22 July, EU officials voiced support for reform of the EU ETS and EUAs rose sharply. Director of the European Commission’s climate unit, Jos Delbeke, was quoted by German MEP Matthias Groote as saying it is “time for the market stability reserve”.

The commission, the EU law proposing body, officially put forward a 30% 2030 energy efficiency target on 23 July. In the long-term, an ambitious energy efficiency target would place pressure on EUAs prices by cutting energy consumption and therefore limiting the need for permits to cover the associated pollution.

However, on Wednesday prices did not react to the announcement as it was largely within expectations.

On Thursday, prices tracked back downwards on profit-taking. As a result, the benchmark only posted a weekly gain of €0.005/tCO2e. Ben Lee

By Ben Lee