Weekly Market Update: 03-07 July

Last week

On Monday 03/07, carbon contracts rose to their highest since June 5th in a last hour jump (pushed up by a strong energy sector). The EUAs traded sideways during the session, with a support at 5.00 EUR. Rising fuel prices (crude oil, coal…), combined with forecasts for higher temperatures in Europe had a bullish effect on German power prices. EUAs closed 12 centd higher than the previous close, at 5.15 EUR.

On the next day carbon prices held steady above 5.10 EUR (helped again by a strong energy complex). Prices resisted another bearish auction result (cleared 4 cents below the secondary market at 5.06 EUR), and started instead hedging higher towards the next technical resistance level at 5.19 EUR. That level appeared too strong to break, and carbon prices fell back towards lower price levels. The market closed the day at 5.12 EUR.

On Wednesday 05/07 EUAs lost 7 cents, closing at 5.04 EUR. Prices fell through the technical support of 5.10 EUR just after the Polish auction cleared 3 cents lower than the secondary market; but then bounced quickly back up. For the second straight day, driven by further strength in coal and power markets, EUAs tried to break through their resistance of 5.19 EUR. After reaching an intraday high at 5.21 EUR, the carbon contracts capitulated and declined quickly until the market closed.

Carbon surged to its highest close in three months on Thursday as coal and power prices hit new highs. EUA prices drifted just below 5.10 EUR during the morning hours. The energy sector started its bullish movement around lunch hours, initiating EUAs to rise 20 cents in afternoon trade before closing at 5.24 EUR (marginally lower than the intraday high of 5.28 EUR).

The carbon contracts closed Friday at 5.34 EUR, after having broken through a technical resistance level at 5.28 EUR. While EUAs seemed to climb on the back of coal and power over much of the last two weeks, this was not the case on Friday, as coal was down, and German power closed flat. A strong volume of 15.5 million allowances were traded in the secondary market. Friday’s EUA auction cleared at 5.24 EUR, the same level as the secondary market. During the auction, the carbon contracts jumped to 5.36 EUR. In the early afternoon carbon traded as high as 5.43 EUR, before crushing down at 5.34 EUR.

Key news

A climate action plan was signed by G20 during a meeting in Germany this weekend. As USA confirmed their intention to withdraw from the Paris Agreement, the efforts of US President Mr. Trump to renegotiate the pact were not taken into consideration. Environmentalists welcomed the plan and said that it was the most detailed list for climate changed ever seen for a G20 summit. They only criticized the lack of a concrete timeline for the phase-out of fossil fuel plants.

Meanwhile, a report made by Climate Analytics said that EU countries should close their coal plants until 2030 if they want to stick to the Paris Agreement. The cheapest way to meet Paris goals is to replace the power coming from coal with renewables and energy efficiency, the report added. This deadline is in line with the plans of Denmark, Finland, Portugal and UK. France and the Netherlands are also discussing to end coal. This phase out, however, will be a big challenge for Germany and Poland, where they rely quite significantly on coal.

Under the new climate plan of France, the domestic carbon tax should significantly increase, announced environment minister Nicolas Hulot. The five-year plan to fight climate change, together with Paris targets from the Agreement, should help to achieve carbon neutrality by 2050. The domestic tax of France was launched in 2014 at 7 EUR/t and was increased last year to 30.50 EUR in 2017.  The French government estimates that a carbon tax at 100 EUR/t will help reduce emissions by 3% from 1990 levels.

The closed-door trilogue negotiations to resume on Monday, July 10. The meeting will be the first one with Estonia representing the EU Council after it took the rotating presidency from Malta in the beginning of July. The main negotiator – the British MEP Julie Girling is also new in this role after taking over the position from her colleague Ian Duncan.

Market Data

EUA DEC-17

Date Open High Low Last
3.7.2017 5.00 5.16 4.99 5.14
4.7.2017 5.13 5.20 5.08 5.12
5.7.2017 5.12 5.21 5.03 5.04
6.7.2017 5.07 5.28 5.06 5.24
7.7.2017 5.19 5.43 5.19 5.34


EUA AUCTIONS

Date Country Price Volume Ratio
3.7.2017 EU 4.98 4 261 500 2.30
4.7.2017 EU 5.06 4 261 500 2.38
5.7.2017 PL 5.10 4 857 000 2.19
6.7.2017 EU 5.07 4 261 500 2.29
7.7.2017 DE 5.24 4 473 000 2.35