European carbon prices retreat after reaching three-week high

Author Eklavya Gupte,

Carbon prices under the EU Emissions Trading System fell slightly in midafternoon trading Aug. 18 after rallying earlier in the week aided by resilient demand amid strong technical signals and tighter auction volumes.

EUAs for December were trading at Eur88.02/mtCO2e ($95.71/mtCO2e) as of 3:53 pm BST (0753 GMT) on Aug. 18, down Eur0.92/mtCO2e from the previous day’s settlement, but up 1.5% from Aug. 11, Intercontinental Exchange data showed.

Platts, part of S&P Global Commodity Insights, assessed EUA contracts for December delivery at Eur88.69/mtCO2e on Aug. 17, compared with Eur84.90/mtCO2e on Aug. 10. This was the highest price since July 28, Platts data showed.

After a slow start in August, EUAs rose steadily midmonth as investment funds continued to increase their net shorts.

Halved auctions and warmer weather forecast for Europe have pushed prices higher, said carbon trader Belektron in a recent note.

“A strong clearing price was aligned with increased net short position of investment funds, which sparked the buying activity,” the note said.

High electricity prices supported by warmer weather along with elevated gas and LNG prices due to the threat of an LNG workers strike in Australia were also contributing to a bullish sentiment.

Some traders and analysts expected prices to reach Eur90/mt next week, but they also warned that the strength could be temporary due to bearish economic indicators.

“I now personally expect the carbon price to reach Eur91-92/mtCO2e within the next few days, before consolidating in this region and progressively retract itself by responding to fundamental bearish signals,” a Brussels-based carbon trader said.

He added that fragile industrial data from the EU, high interest rates, and weak macroeconomic data from China were also contributing to “a medium-term significant bearish potential for the price of carbon emissions.”


Q1 emissions fall, CBAM details issued
Recent Eurostat data showed that EU greenhouse gas emissions totaled 941 million mtCO2e in the first quarter of 2023, down almost 3% from the same quarter the previous year.

“This decrease took place simultaneously with a 1.2% increase in the EU’s GDP in the first quarter of 2023, compared with the same quarter of 2022,” the bloc’s statistical agency said in a statement Aug. 16.

Emissions in Q1 2023 decreased in almost all EU countries, compared with the same quarter of 2022, except for Ireland, Latvia, Slovakia, Denmark, Sweden and Finland. The largest declines in GHG emissions were observed in Bulgaria, Estonia and Slovenia. Emissions in Q4 2022 were 938 million mtC02e, down 4% from Q4 2021, the data showed.

The European Commission has issued much-awaited details on the reporting obligations and methodology governing its Carbon Border Adjustment Mechanism.

In the transitional phase of CBAM, to run from Oct. 1, 2023, to Dec. 31, 2025, traders will only have to report on the emissions embedded in their imports without paying any financial adjustment.

Under the regulation, importers will need to report on the quantity of imported goods, direct and indirect emissions embedded in them, and any carbon price due for those emissions, including carbon prices due for emissions embedded in relevant precursor materials.

For electricity, for instance, the reporting entity must provide an emission factor used for exported electricity, expressed as mtCO2e per MWh.

For steel goods, the identification number of the specific steel mill where a particular batch of raw materials was produced must be provided.

Member states can apply financial penalties ranging from Eur10/mtCO2 to Eur50/mtCO2 of unreported emissions if the reporting entity has not taken the necessary steps or provided incorrect or incomplete information.

Meanwhile a CBAM Transitional Registry, an electronic database, is to ensure the efficient implementation of reporting obligations.

The goods covered by CBAM are iron, steel, cement, aluminum, fertilizers, electricity and hydrogen, as well as indirect emissions under certain conditions. The mechanism is to be phased in from 2026 to 2034, in step with the phaseout of free allowances in the EU ETS.

The purpose of the tax is to reduce the risk of carbon leakage, and to encourage importer nations to apply their own carbon markets and so limit CBAM impacts on their traded goods.