EU ETS prices recover to Eur100/mt supported by higher gas, power complex

Carbon prices under the EU Emissions Trading System rebounded briefly to over Eur100/mt on March 10 on strong technical signals, colder weather and higher gas and power prices.

The EU Allowances under the December 2023 contract was trading at Eur99.53/mtCO2e at 1120 GMT on March 10, having hit a two-week high of Eu100.12/mtCO23 earlier in the day, ICE data showed.

Prices have reversed almost all of last week's losses supported by strong power and gas complex in Europe due to ongoing strikes by French energy workers.

Platts, part of S&P Global Commodity Insights, assessed EU Allowances for December 2023 at Eur99.11/mtCO2e March 9, the highest since Feb. 27, when it hit a record-high of Eur100.23/mtCO2e.

Financial investor positions have risen sharply in 2023 reflecting a bullish environment.

Carbon allowances have also benefitted from a raft of EU climate initiatives such as the Fit for 55 package, the REPowerEU deal and the ETS reforms.

Challenges over current nuclear availability and cold weather will support EUAs in the immediate short term, but milder spells of weather may add short term bearish pressure into April, according to S&P Global carbon analyst Michael Evans.

"For [April], there remains ongoing bearish expectations in the market, driven by a combination of weak industrial demand, ongoing issuance of free allocations, warmer seasonal weather (leading to further reductions in power demand), higher RePowerEU adjusted auction supply and a trim of speculator net long positions," Evans added.

European natural gas prompt delivery prices rose on increased gas-for-power demand.

Platts assessed the Dutch TTF day-ahead delivery contract at Eur45.75/MWh March 9, up Eur2.825, or 6.6%, on the day, data from S&P Global showed.

Expectations of milder weather in mid-March after a cold-spell could put some pressure on prices. Temperatures across northwest and southern Europe are expected to remain slightly above seasonal averages for the week beginning March 13, according to CustomWeather forecasts.

S&P Global analysts now expect carbon prices to average Eur81/mtCO2e in 2023, an upward revision from their previous forecast, but values are set to fall in Q3 2023.

"High carbon prices will support coal-to-gas switching between May and September, and the coming months will bring clarity around plans to increase EUA auction supply under the EU REPowerEU initiative," they said in a recent note.