Weekly Carbon Trading Market Update – 20th July, 2015

Market Development

Price closes up 13c at €7.75 Price hits €7.85 high on Tuesday Greece bailout resolution gave CO2 impetus to break the resistance at €7.64 EU Commission releases Phase IV EU ETS review proposals Power and coal prices rise as EUR weakens

Auction Overview

15.075Mt enters the market this week in 5 auctions Last 2 weeks of normal auction supply before volume halves through August to coincide with summer holiday shutdowns

Price Action

Last week was a bullish week for EUA carbon trading prices as the Greek bailout deal and ETS structural reform helped to reinforce analysts higher price forecasts. Last week's high of €7.85 was the highest price on the EUA Dec 15 contract since February 2015. The year's high of €7.90 and the important psychological level of €8 now appear to be firmly within sight as already reduced auction volumes (due to backloading) are halved through August. The upwards momentum started last Monday as a Greek bailout deal was agreed and the resistance at €7.64 was broken. The front December contract had repeatedly bumped up against this resistance but broke through and closed above it presaging further price rises. Price very briefly dropped back below the resistance level on Friday morning following a weak auction that cleared 5c below the market, however, as is often the case, previous resistance turned into support on the way down and the price rallied through Friday afternoon to finish the week at €7.75, a week-on-week gain of 13c. Power prices also rose, however, the combination of EUA price rises and a weakening EUR pushing EUR denominated coal higher, meant the clean dark spreads did not advance.

Price Impact: with the August auction shutdown looming it is possible we see further price rises as already reduced auction supply falls further. It is unclear how much recent price gains can be attributed to increased hedging activity ahead of the supply fall and how much is due to speculators relieved by a third Greek bailout.

Market Stability Reserve (MSR)

Important MSR Dates

18th September - EU Environment Minister endorsement

The EU Commission releases the first post 2020 ETS Review

The European Commission (EC) released its proposal for the revision of the EU emissions trading system (EU ETS) on Wednesday. The review is deemed necessary to keep Europe on track to meet its aim of a 40% reduction in emissions by 2030 by extracting a 43% reduction from companies covered by the EU ETS. The reduction of supply (both free allocations and auctions to achieve the 43% emissions reduction target) will lead to increased costs for all EU ETS participants, if you missed the Redshaw Advisors summary of the key points please click here.

The Week Ahead

Breaking and re-testing the technical level of €7.64 may prove to be a significant step towards the analysts' longer-term higher price forecasts. Combined with July being a bullish month for carbon for the 3rd year in a row and August seeing price gains every year since 2008 the odds are in favour of further price gains over the coming weeks.