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Bearishness extends in carbon markets, EU ETS prices remain below Eur90/mt


High coal to gas switching pressurizing carbon complex

EC to frontload 16.5 million EUAs from July 2023

Annual volumes of Innovation Fund allowances to be auctioned for 2024

  • Author
  • Eklavya Gupte
  • Editor
  • Daniel Lalor
  • Commodity
  • Coal Electric Power Energy Transition Natural Gas

Carbon prices under the EU Emissions Trading System experienced a volatile few days this week but growing bearish sentiment meant prices will likely remain below Eur90/mt ($99/mt), trading sources and analysts told S&P Global Commodity Insights.

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EU Allowances under the December 2023 contract were trading at Eur85.73/mtCO2e at 1224 GMT on May 5, having settled at Eur87.34/mtCO2e on April 28, ICE data showed. EUAs have moved in a Eur84-88/mtCO2e range this week.

Platts, part of S&P Global Commodity Insights, assessed EUA contracts for December delivery at Eur84.49/mtCO2e on May 5.

EUAs for December 2023 slumped to a three-month low of Eur85.64/mtCO2e April 26 but recovered to Eur86.73/mtCO2e on April 27, according to data from S&P Global Commodity Insights.

Compliance demand has fallen after the April 30 deadline to surrender allowances, and weak gas and power prices was continuing to support coal to gas switching.

"Fundamental bearish pressure remains with coal to gas switching supported above Eur65/mtCO2e from now until October, and power demand for EUAs remains limited by easing gas demand and seasonal heating demand lowering," S&P Global carbon analyst Michael Evans said.

Evans said there was some price support after the European Commission confirmed that Innovation Fund allowances from the REPowerEU will be brought on the market only in 2024, tightening some of the supply in the second half of this year,

Tighter supply

The EC confirmed May 3 that 16.5 million carbon allowances will be front-loaded through auction sales from July under the REPowerEU deal.

The Commission also said additional sales of the EU Innovation Fund allowances to be auctioned for 2024 will be finalized by October.

"That means that once the auctioning regulation is revised, the 2024 auction calendar will be updated," it said.

S&P Global analysts expected EUA prices to increase to Eur85.1/mtCO2e in 2024, from Eur81.8/mtCO2e in 2023 and Eur81.5/mtCO2e in 2022.

The European Council had recently formally adopted the REPowerEU, which confirmed that more money for member states would be raised through the EUA allowance auctions.

In late-March, the EU agreed to front-load more auctions and sell more allowances from the Innovation Fund in a bid to raise Eur20 billion.

Under the package, Eur20 billion will be made available to finance the investments and reforms. But out of this, Eur8 billion will be front-loaded or allocated at EU carbon allowance auctions, earlier than previously planned. The other 60% will reallocated through the Innovation Fund.