With stability characterizing the end of May, prospects of rising prices for emission permits are expected in June: the market trend is once again on the rise, also thanks to the boost given by energy prices. And with the increase in power consumption expected in summer, due to rising temperatures, new volatility is expected on the market.
Carbon Prices registered & forecasts
Last May trading day and monthly volumes, in brackets April values.
|Contract||May closing price||April closing price|
|EUA Dec-16||6.10 E/t (6.18)||306.6 Mt (376.6)|
|CER Dec-16||0.40/t (0.42)||0.8 Mt (0.9)|
Price Forecast EUA 2016-2020 are 7,5 E/t. Updated on May 13, 2016.
Source: Thomson Reuters Carbon Europe
The month of May, which is normally one of the periods of highest decrease in the price of CO2 trading permits, ended with stability. The volatility was significant from the very first days of the month and characterized the EUA it its increase towards 6 €. In the last week of the month, the price of the EUA Dec16 contract stabilized at 5.70 € and found solid support in this pricing level. In the last days of the month, the increase in energy prices helped the price gain renewed ground again with the month closing at 6.10 €.
In the first June sessions, the evaluations on the proposal for the reform of the ETS European market were submitted to the European Parliament by rapporteur Ian Duncan. In the first June week, the price is however still anchored to the 6 € threshold. The market has almost not responded at all and this would imply that the proposals submitted have been ignored or not considered valid enough to rectify the functioning of the EU ETS market. As early as on the first days of the second week, a reversal of the trend can be registered, with the EUA beyond the threshold of 6.20 € on Monday, June 6.
An additional slowing down of the activity on the offset credit markets was also registered. As regards exchanged volumes, these went down by well 30% in May with a decrease up to 30 thousand credits exchanged every day. Activities mainly concerned the spot market and the CER contract and were finalized at 0.41 € and 0.40 € respectively.
In April the V16 futures contract on the RGGI market was exchanged at an average value of 5.33 $/t on the The ICE market. Exchange on The ICE platform registered a drop in this period, probably due to the statement by the US Supreme Court that blocked the implementation of the Clean Power Plan, whereby this undoubtedly contributed to the decrease in the April prices. The downward trend went on in May, too, with the average price further decreasing to 5.15 $/t to then close the month at 4.70 $/t, i.e. a value that had not been registered since the beginning of 2014.
Ontario has announced that it is soon going to join the US cap and trade system. The Canadian province intends to start in 2017 and join the WCI in 2018. It is expected to reach the objective set for the first year, to then become an official buyer of emission permits in the following years. This would enable to make up for the lack of market demand characterizing California and Quebec, thereby boosting the price of quotas.
The law through which Ontario officially joined the ETS system was approved on May 19 to support Ontario’s objective to achieve a 15% reduction in the level of emissions of the province as against 1990 by 2020, i.e. the current 82% of total emissions.
The cap system will become effective on January 1, 2017, with the first auction of emission permits scheduled by the end of March of the same year.
2020 Emission Reduction goals in absolute and relative terms
|Jurisdiction||1999 Emissions, Mt||2020 goal||2020 goal, absolute, Mt||2020 goal vs emissions|
|California||431||1990 level||431||-6% (2012)|
|Ontario||181||15% below 1990||155||-10% (2013)|
|Quebec||90||20% below 1990||72||-13% (2013)|
Over 7 million quotas were exchanged on the spot market among the seven Chinese pilot markets in the month of May. Guangdong, which is the largest among the pilot markets, registered the biggest activity on the secondary market on the days approaching its compliance deadline of 20th June. The primary market, instead, remained calm. An auction was cancelled on 8th June due to lack of interest on participants’ side
|Pilot||Allowances Price May 31||End-month Price change (%)||April and May traded volume allowances||April and May Traded Volume CCERs|
Source: Thomson Reuters
The Seoul Government acted in favor of Korean companies under the EU emissions trading system (EU ETS). About 235 companies had expressed the need to have higher quotas to cover their 2015 emissions. The Korean Government thus organized a special auction of 900,000 quotas, which started on June 1, in order to give these companies the possibility to increase their number of quotas.
On the international front, the Korean Government wishes to prove that it is seriously committing itself to the fight against climate change, thereby targeting the ETS as a key tool to reach its objectives. The country is expected to reduce its emissions by 37% by 2030. About one third of this reduction can be achieved through the use of international credits, the rest by leveraging on domestic policies. At a national level, the Government is strongly committed to support the growth and competitiveness of the country’s exporting businesses. From this viewpoint, it pays special attention to the possible negative repercussions of the Korean ETS system on national companies.