Carbon price drops to two month lows as utilities step back

The price of carbon emission allowances has dropped to its lowest level in two months as utilities step back from the market ahead of talks to reform the oversupply which has driven prices lower since the start of the recession.

The price for carbon paid on the European Union’s emissions trading system (ETS) stumbled almost 10 per cent lower than its intra-month high, to change hands at around €5.91 per metric tonne of carbon on 16 September.

Prices are now a fraction of where there were in early 2009 when allowances were priced at over €25/mt, and were expected to incentivise a move away from high-carbon power generation.

“A continued absence of utility players emboldened the bears,” a client note from CF Partners said of the two month lows.

The losses come ahead of talks in Brussels in the coming week over reforming the chronic oversupply within the market through a market stability reserve (MSR) in the hope of helping prices to recover.

But CF Partners added that a reluctance to trade on the part of Europe’s major utilities is also playing a role in the weaker price signal.

“The reasons for the turn in sentiment and lower prices can be summarised as follows: firstly, there is a realisation of likely delays to the discussion and negotiation of market reform and MSR implementation; secondly, the market adjustment to higher post-summer auction volumes, and thirdly because of weak interest from utilities on the buy side of the market given weaker generation margins,” the note said.

The note added that losses may have come due to a “technical weakness” after the market reached highs at the end of August.But the trading firm believes that further losses on the carbon market around €5.75/mt are possible over the coming weeks.

The European Parliament is expected to resume talks on the proposed market reform on 24 September.