Co2 market

Is the Collapse that Started in January Coming to an End?

In February the price of emission permits in Europe continued to go down and reached a minimum level of 4.62 E/t. Last time this level was almost reached was 2014.  The second half of February was more stable with 5.01 E/t.  The price recovered in March with 5.24 E/t.

Partial data on 2015 emissions were published on 1st April.  Emissions in the energy sector went down by 0.4% in spite of the slight increase in electricity production.  Analysts believe that this figure is due to the increase in renewable energy sources and the greater use of gas as opposed to coal. Altogether, European emissions in the ETS sector went down by 0.4%. In March, the price of emission permits increased slightly to 5.22 E/t.  Whether this is the end of the collapse that started in January or only some temporary relief still remains to be seen.

EUA 2016-2020 price forecasts: 7,30 E/t

Carbon Price and Volume: Prices of the last day of trading in February with monthly volumes negotiated for each contract.

January values are indicated in brackets.

Contract Price Volume
EUA Dec-16 5,01 E/t (6,07) 435,5 Mt (456,9)
CER Dec-16 0,35 E/t (0,38) 0,3 Mt (0,8)

Source: Thomson Reuters Carbon Europe, April 5th 2016

Europe

In the first quarter of 2016, lack of confidence in the European market of CO2 emission permits was spreading. The collapse of the EUA price which had started in January, carried on in February with the Dec-16 contract closing at 5.01 E.t, 18% less than the previous month. March was stable with the price fluctuating between 4.79 and 5.33 E/t.  The month ended at 5.24 E/t (4.6% more than in February).

The strong drop in price, particularly in February, shows that lack of confidence is still widespread among operators in the European market of emission permits. During the second half of February, there was a slight recovery thanks to the support given by the trend shown by other energy commodity markets, particularly oil prices and the German electricity market.

As required, by the end of March, every ETS company will have published data on emissions during 2015.  At the same time, free quota allocation is coming to an end although it should have ended at the end of February.

Alongside free quota allocation, an increase in the volume of quotas being sold by European companies is being projected. This could further burden the price of CO2. However, purchases of quotas made in view of the surrender of 2015 quota emission allowances (to be finished by 30th April) will probably offset the strength of forces acting on prices and will enable EUA to partially regain the ground that has been lost in the last few months.

Partial data published on 1st April on 2015 real emissions show an overall 0.4% drop as against 2014, with a total of 1.806 Mt of CO2 emitted in Europe (excluding the aviation sector) in spite of the modest economic recovery.

Emissions by country

2015 2014 % variation
Germany 458.5 461.2 -0.6%
Poland 200.2 197.10 +1.5%
UK 175,9 197.9 -11.2%
Italy 156,6 152.6 +2.6
Spain 137,4 115.0 +19.5
France 98.8 100.2 -1.4%
Holland. 94.3 89.0 +5.9
Czech Republic 66.6 666.7 -0.1%
Greece 49.9 55.4 +9.9%
Belgium 44.7 43.9 +1.9%
Romania 42.4 42.6 -0.4%
Bulgaria 35.3 34.3 +2.9%
Austria 29.5 28.1 +5.1
Portugal 28.2 24.2 +16.5
Finland 25.5 28.8 -11.4%
Norway 25.4 24.9 +2.0%
Sweden 21.2 20.9 +1.3%
Switzerland 19.8 19.3 +2.1%
Hungary 19.3 18.8 +2.3%

Source: processing of Reuters data

North America

The RGGI auction held on 9th March ended at 5.25 dollars after trading 14.8 million RGAs. The ratio between supply and demand was 3.5/1 as it showed some competitiveness in the market although the price had gone down considerably and we are nowhere near 7.50 dollars of the latter part of 2015.

The secondary RGA market on the ICE platform ended the month at 5.30 dollars, 5 cents more than the allotment price.

In March, Carb auctioned 416,000 carbon offset credit thus reaching a total of 38.9 million credit offsets issued since the beginning of the scheme.

Justin Trudeau, the Canadian prime minister has obtained the support of provincial Leaders to extend the carbon market to every Country. The announcement, however, is still rather vague and no detail has been revealed on how this will be achieved. In general terms, the premier has stated that the plan is to enable provinces to create their own internal mechanisms to set the price of CO2 as long as the criteria are at least as strict as the national ones.

Washington electorate has proposed a vote to introduce a carbon tax of 25 dollars on CO2 emission from fossil fuels.

China

In March, China published its thirteenth 5-year reduction plan (2016-2020).  According to the plan, energy consumption should not exceed 5 billion tons of carbon equivalent by 2020.  Actual energy consumption

Energy consumption in 2015 amounted to 4.3 billion tons of carbon. By 2020 the share of non-fossil fuels within China’s energy mix is bound to increase by 15%. With a projected 6.5% annual growth of China’s GDP, the plan provides for an 18% reduction in CO2 intensity per unit of GDP between 2015 and 2020.

During March, around 8 million emission permits were exchanged in the seven pilot markets. Forward contract trading is beginning to develop in the Chinese market even though volumes are much lower than those of the spot market.

By the end of March, over 500 projects to issue credit offsets were official registered.

Volumes exchanged on Chinese OTC pilot markets

Pilot Allowance Price Mach 31 End-month Price change % March allowance traded volume March CCER (credit) traded volume
Shenzhen 40.5 -10% 4,194,823 280,042
Shanghai 6.7 -32% 1,050,894 735,005
Beijing 33.94 -11% 125,681
Guangdong 14.23 -11% 856,512
Tianjin 23.13 0% 1,080
Hubei 21.53 -8% 1,453,334
Chongqing 10 -20% 24,948
Total 7.707.272 1,015,047

Source: processing of Reuters data

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