EU carbon price levels out at €18

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EUA prices have stabilised in early November after sharp falls in October when the growing signs of worldwide recession caught up with carbon markets. The benchmark Dec 08 forward contract has levelled out to trade in the €18 range this month as EU carbon prices strike 18-month lows overall.

The benchmark Dec 08 forward contract closed at €17.95 on the European Climate Exchange on November 12, down more than €5 or 23 per cent from its mid-October level and almost 40 per cent from it’s oil-driven highs of early July. Later-dated contracts have shown similar falls with 2009, 2010 and 2011 contracts all now under €20 a tonne.

Falling energy prices have hit the carbon markets hard, particularly the collapse in the oil price, which fell 60 per cent from its record high in July to $US60 last month. Energy prices are in turn falling on fears of a world recession, and those fears are also directly affecting sentiment in the carbon market as emissions forecasts for coming years fall.

With most energy market analysts agreeing oil has probably bottomed, it may be that carbon prices have reached their low point. But much depends on how severe the signs of recession are that emerge in coming months.

The general nervousness on credit markets over counterparty risk is being seen in the carbon market in fewer traders willing to enter into transactions in the longer-dated carbon contracts, according to Societe Generale. This means more of the trading than usual is in the 2008, 2009 and spot markets. But there have been plenty of sellers taking prices down as emitting firms look to liquidate holdings to raise cash in the face of lower turnover and less availability of credit, SG’s asset research team says.

Trading volumes have settled to more normal levels averaging 8 to 10 million tonnes a day after soaring during the sell-off, a massive 35 million tonnes changing hands on one day on the ECX on October 23.

The spread between EUAs and CERs has now narrowed further within the overall market decline, the CER discount now reduced to €2.30. The opening of the ITL link between the UN market and the EU market’s transaction system in mid-October is a major factor but secondary market CERs have also had something of a floor under them created by the higher-risk primary market for CERs. That market is now being squeezed downward too, however.