Europe’s carbon market in 2015: rising prices and falling volumes

Europe’s carbon market was characterised by rising prices and falling volumes in 2015, according to a report from Thomson Reuters.

The average price of EU Emission Allowances over the year was ‎€7.7/t, a 29 per cent increase on 2014. At the same time volumes fell by 29 per cent, meaning the overall value of trading fell by eight per cent to around ‎€37 billion.

The ‘Carbon Market Monitor’ attributes the trends to the EU’s continued attempts to get rid of a surplus of allowances using a process called backloading; delaying their auction until the end of the decade. The EU backloaded 400 million allowances in 2014 and 300 million last year. It is expected to hold back another 200 million allowances in 2016.   

The report says the reduced extent of backloading should help to increase volumes over the next year, as the overall number of allowances being auctioned will actually increase. It predicts a 7 per cent rise in volumes in 2016, assisted by the growth of trading on secondary markets, a long running trend.

A decision on what to do with the backloaded allowances also helped to push prices higher and hold volumes down in 2015. In July the European Parliament voted to create the Market Stability Reserve, a mechanism which will automatically take allowances off the market if the surplus exceeds a certain threshold and return them to the market if a deficit arises. The backloaded allowances will be transferred to the reserve following its creation.

This was seen as firm commitment to stop the market becoming oversupplied, increasing bullishness, according to the report. Volumes fell as some speculators left the market, no longer able to take advantage of the volatility which came hand in hand with uncertainty over policy. Of course not everything has been resolved policy-wise and the report highlights a review of the ETS scheme as the main thing to watch out for in 2016.