EU carbon prices hold above Eur26/mt early August

London — EU carbon allowance prices held above Eur26/mt ($30.71/mt) early August, making modest gains from a low of below Eur25/mt late July.

EU Allowance futures contracts for December 2020 delivery on the ICE Futures Europe exchange traded in the range of Eur25.52-27.44/mt in the week ending Aug. 7. That compares with a low of Eur24.82/mt July 27.

The modest gains reflected a more subdued tone in the market following a period of heightened volatility in July which saw prices surge to a 14-year high of Eur30.80/mt.

Brent crude prices made moderate gains to trade at $44.50/b to $46/b later in the week, providing a slightly supportive backdrop for the energy complex.

August is traditionally the quietest month of the year for the European carbon market, with many traders away on vacation. However, this factor may be affected this year by the COVID-19 lockdowns which have curbed travel activity across Europe.

European governments are set to scale back auction volumes by more than 50% in August and this may provide some support for prices and avoid further significant drops.

September will see auction volumes rebound to 86.5 million mt, from 37.5 million mt in August, according to exchange data, and eyes will also be on the European Commission for its expected legislative proposal to revamp the EU's 2030 emissions reduction target.

Separately, the EC announced a series of 10 dates Aug. 5, where transfers of carbon allowances will be possible between the EU and Swiss carbon markets, after the two systems were formally linked in January 2020.

The dates run from Sep. 28 to Dec. 21 and will allow transfers in both directions between the EU and Swiss emissions registries. The transfer dates were necessary because the registries are still not connected by a permanent direct link, the EC said.

The transfer dates are not expected to have a major price impact. The Swiss ETS is tiny in comparison with the European market, with an annual cap of 4.9 million mt in 2020, according to the Swiss environment ministry, compared with the EU ETS cap at just under 1.82 billion mt in 2020.

December 2020 EUA futures traded in a range of Eur25.95/mt to Eur26.75/mt Aug. 7.