EU carbon prices sink another 13% on the day, down 33% on week

London — EU carbon allowance prices fell another 13% Wednesday morning, taking the cumulative decline over the last five sessions to 33% as the coronavirus sell-off continued, with Europe grinding to a temporary halt.

EU Allowance futures contracts for December 2020 delivery on the ICE Futures Europe exchange fell as low as Eur15.96/mt ($17.30/mt) by 10:55 London time.

The contract closed at Eur23.92/mt last Wednesday after showing initial resilience in the face of the wider energy price declines.

However, the deep economic impact from Europe-wide lockdowns is set to significantly reduce emissions not just from the power sector due to falling industrial demand, but from industries covered by the ETS themselves as well as domestic flights with many airlines virtually grounded.

Most prominent amongst the factory shutdowns are European car makers with Daimler and BMW on Wednesday adding production halts or rampdowns to already announced stops at VW, PSA and Fiat Chrysler while retail and commercial businesses are either shutting or reducing operations.

In Germany, industrial power demand accounts for 46% of total demand with 2019 already down 4% on year to 234 TWh with similar proportions in Italy, the country most severely hit by the outbreak of coronavirus.

"Industrial emitters, who receive most allowances for free, may also resort to selling EUAs to raise capital at a time of financial distress," said Jeff Berman, director of emissions and clean energy at S&P Global Platts Analytics in a research note late Monday.

Daily auctions

The cleared price in Wednesday's auction of 5.7 million mt CO2e certificates on behalf of the UK fell to Eur16.11/mt, down 31% from the previous UK auction two weeks ago, ICE said.

On Tuesday, the daily auction of EUA carbon allowances was cancelled due to low volumes, EEX said. The volumes of 2.7 million mt CO2e certificates would be added to the next four auctions on behalf of 25 EU member states with the next one on Thursday.

On the policy side, the UK government is due to propose legislation Thursday setting out a domestic carbon market and carbon policy, which may provide detail on the shape of the UK's carbon pricing framework after the country leaves the EU ETS on December 31, 2020.