EU carbon prices enter bear market, down 22% since Wednesday

EU carbon allowance prices fell another 4% Tuesday, taking the cumulative decline over the last four sessions to 22% as the coronavirus sell-off continued.

EU Allowance futures contracts for December 2020 delivery on the ICE Futures Europe exchange fell as low as Eur18.53/mt ($20.09/mt) by 11:00 London time, the lowest since October 2018.

The contract closed at Eur23.92/mt last Wednesday and had shown initial resilience in the face of the wider energy commodity price decline.

"Declines across wider financial markets have become too strong for EUAs to ignore. This is perhaps most relevant for investors/speculators [without compliance obligation], who may struggle to justify maintaining a long EUA position amid a wider sell-off," said Jeff Berman, director of emissions and clean energy at S&P Global Platts Analytics in a research note late Monday.

"Industrial emitters, who receive most allowances for free, may also resort to selling EUAs to raise capital at a time of financial distress," the analyst said.

Europe's biggest car makers VW, PSA and Fiat Chrysler have announced production stops while retail and commercial businesses are either shutting or reducing operations.

France-based car group PSA is shutting 14 European factories covering Peugeot, Citroen, Opel and Vauxhall brands with plants in France, the UK, Germany and Spain, it said Monday.

Germany's VW Group is set to halt production at its German factories from Friday, according to media reports Tuesday.

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.

The daily auction of EUA carbon allowances was cancelled Tuesday, platform operator EEX said.

The auction of 2.7 million mt CO2e certificates on behalf of 25 EU member states was cancelled due to low volumes, it said adding that the volumes would be added to the next four auctions.