Carbon price plunges following Brexit vote

The European carbon price has plunged in the wake of the UK’s vote to leave the European Union.

After closing at ‎€5.65 on the day of the vote, allowances for the EU emissions trading scheme (ETS) dropped to ‎€4.96 on the following day. It was the lowest level seen since March, when the price was already at a long-term nadir.

The price recovered somewhat in the early hours of trading this week, but at the time of publication was back down at ‎€4.83.

“It’s been a very bearish development in the carbon market,” head of carbon research at Energy Aspects Trevor Sikorski told Utility Week. He said the market has been responding to two main concerns, the first over the economic outlook for Europe.

“Of course that’s deteriorated,” he said, adding: “I think on Friday that move was probably more like an immediate response of ‘oh my god this is bad economically’.”

The second, he said, is the uncertainty over “what it means for UK installations’ continued participation in the EU ETS”. He said plants in Britain which hedged their positions by buying carbon allowances several years ahead, will have started dumping them on the basis they may not be needed.

Sikorski told Utility Week whether Britain does continue to participate in the scheme after leaving the EU is likely to depend on whether it retains access to the single market. Either way he said these concerns mean “it’s hard to see a recovery in prices any time soon”.

The EU ETS has been widely criticised for failing to provide a sufficiently high price to properly incentive decarbonisation. In response the French government recently announced plans to unilaterally introduce a ‎€30 per tonne carbon price floor.

The introduction of the measure would likely reduce interconnector imports to the UK by third, senior modelling analyst for Thomson Reuters’ Point Carbon team Yan Qin told Utility Week.