European carbon prices breach Eur100/mtCO2e mark, trading at record-high

European carbon prices breached the symbolic Eur100/mtC02e mark Feb. 21 with the December 2023 contract trading at a record-high on the back of bullish technical factors.

Carbon prices under the EU Emissions Trading System rose to a record Eur101.16/mtCO2e at 1459 GMT. By 1532 GMT, European allowances for the December 2023 contract were trading at Eur100.50/mtCO2e.

Most traders and analysts expect some prompt support for prices despite bearish factors, such as high auction volumes, milder weather, and high LNG imports.

Growth in open interest trading along with high net length positions have also coincided with the upward trend in prices. The weakness in power and coal prices was also supporting carbon, analysts added.

"Fundamental support from power sector demand – wider commodity prices (gas, coal) have decoupled from the current EUA price in recent weeks, but recent news of low hydro output and conservation of gas stocks across Europe has enabled continuation of some coal capacity in near term power generation - supporting EUA demand," S&P Global Commodity Insights said in a recent note.

2023 forecast

EU auction volumes have remained robust in recent weeks despite higher prices.

Cleared prices in the Feb. 21 EU auction rose to Eur95.35/mt CO2 equivalent, another year-to-date high, with 2.409 million CO2 allowances sold.

S&P Global now expects carbon prices to average Eur81/mtCO2e in 2022, an upward revision from its last previous forecast, but this guidance is unchanged from last year's levels.

"We continue to forecast a bearish price trend to Q3 2023, as further information on the increase to near-term EUA auction volumes is anticipated in the coming months under the RePowerEU plan," S&P Global carbon analyst Michael Evans said.

"Our annual average for 2023 has consequently been lifted to reflect the recent price environment and improvements in the Eurozone GDP growth outlook for 2023."

Platts, part of S&P Global Commodity Insights, assessed EU Allowances for December 2023 at Eur98.35/mtCO2e Feb. 20. Prices have remained above Eur90/mtCO2e since Feb. 1, data showed.