Carbon price climbs to 8-month high

The price of carbon emissions allowances on the European Union’s Emissions Trading System (EU ETS) reached 8-month highs at the end of November as the positive outlook for market reform legislation continued to bolster sentiment.

The EU allowance (EUA) price hit highs of €7.21 per metric tonne of carbon emitted despite a weaker energy complex led by heavy losses on the crude markets. Traders say the carbon price has remained buoyant into early December, hovering around the €7 mark with a resilient outlook for prices.

“Demand remains healthy for EUAs; we do not consider prices to be over-extended to the upside given the current political outlook for the passage of [reform] legislation through the committee amendments and to the EU parliament,” said a carbon trader from CF Partners.

The bellwether EUA contract dipped below the €7/mt mark on 1 December after heavy losses on the Brent crude market the week before, but recovered ground to close at €7.07/mt.

CF Partners said falling Brent prices “undoubtedly” brought softer pricing levels to the carbon market as a result of weaker sentiment across the energy complex, but added that the dip also came in anticipation of market volatility ahead of a key meeting in Brussels over the much-needed market reform.

“We believe downside risk remains limited,” the trader added, saying the reform proposals were likely to attract wide-ranging support.

The proposals seek to tackle the 2 billion allowance surplus which has undermined the functioning of the market, resulting in a system that does not send the right price signals to low carbon investors.

The proposed market stability reserve will allow a reserve of carbon permits that will increase or reduce the system supply in response to levels of demand, allowing the market to operate effectively as external circumstances change.