Weekly Carbon Emissions Trading Update - 1st September, 2015

Market Development

Carbon prices close the week at €8.12, down 9c German power hits 12 year low on Monday Sharp falls in clean dark spreads Power relatively flat week on week but EUR weakness pushes coal prices higher China volatility continues to impact commodities markets Strong GBP helping to shield UK emitters from rising EU carbon costs Redshaw Advisors are hiring

Auction Overview

12.157Mt comes to market this week in four auctions. September brings in second highest auction volume of the year at ~63Mt

Price Action

Last week saw a modest fall in carbon prices to €8.12 on the front December contract, a week-on-week fall of 9c, the potential for price gains caused by lower auction volume was ultimately overshadowed by weakening power fundamentals. German power prices hit a 12 year low intra-week and caused sharp falls in the clean dark spreads (CDS). Although power prices recovered to end the week relatively flat, the strong run of the Euro subsequently came to an end and it fell back markedly against the US Dollar. This impacted EUR denominated coal prices, pushing them higher and weakening the CDS. The CDS has fallen to levels last seen at the start of August and with the prospect of a return to full auction volumes in September the carbon price followed.

Price Impact: The strong fundamentals underpinning emissions trading in recent weeks have been eroded and carbon appears to be no longer immune to the wider market volatility. The reaction to ‘normal' auction volumes over the next week will set the scene for short to medium term price development. Despite the weakening economic outlook Energy Aspects', in Friday's monthly Carbon Outlook (contact us if you are not receiving this), have not changed their longer term price expectations. Market Stability Reserve (MSR)

The MSR has passed all but one legislative hurdle, the last one is expected to be a formality and thus a fully operational MSR, reducing auction supply by 12% per year of the total over-supply, will come into effect in January 2019. You can read more about the MSR here. Important MSR dates:

18th September - EU Environment Minister endorsement

Strong pound shielding UK emitters from rising EU carbon costs European carbon prices have risen markedly so far this year, but up until recently UK-based emitters may not have felt it. A fortnight ago, the benchmark EUA contract was up by 10.4% in euro terms for the year to date, but only 0.8% higher in pound sterling. To read more, please click here. Redshaw Advisors make a video and are hiring

If you know someone that might be interested in a Sales Executive job at Redshaw Advisors then please forward our recruitment website link to them. If you want to know more about what we do please take a look at our new corporate video here and get cheered up by the soundtrack! The week ahead

With auction volumes now back to normal the market has to absorb a lot more supply. Contrasting this is the possible return to the market of utilities who may have played a limited role in the market through August while liquidity was low. With the release of the largest emitters' quarterly statements, it appears that the largest utilities are behind their typical hedging patterns. Depending on whether or not this is a deliberate policy change, there could be some upside for carbon prices through the rest of H2 2015 if the utilities are playing ‘catch up'. Short term, much will depend on the China situation and the volatility that causes.