Bring it in – Price forecast competition 2017

Last January we invited our clients receiving the Daily Newsletter to do the impossible and guess the highest settlement price of the EUA daily futures (considered as spot) in 2016 on ICE.

In 2016 the settlement price of the EUA daily futures moved between 3.93 euro and 8.04 euro, with an average of 5.35 euro.

Knowing how volatile the carbon market is, it seemed a mission impossible indeed to guess the highest settlement price of the year.

The numbers we received ranged from 7.50 euro to 10.15 euro. A Hungarian client, however, managed to hit the 8.04 euro maximum exactly.

His award is a bottle of good quality Hungarian wine. Congratulations!

With back-loading expiring, negotiations about the post-2020 reform continuing and elections in many EU member states, 2017 seems to be another exciting and volatile year in the carbon market. Analysts polled by Thomson Reuters just reduced their average price expectations for 2017 by 3% (see the table below).

Do you dare to have your own forecast? As poker professionals say: bring it in (start betting on the first round). We encourage you to send us your estimate for the highest settlement price of the EUA daily futures (spot) contract on ICE in 2017. The deadline for submitting your bet expires 31 January end of business (18:00pm). All bets received via phone, mail, skype etc. are accepted.

EUA price forecast consensus (last updated 09/01/2017 by Thomson Reuters)

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(Polski) Korekta cen uprawnień do emisji w pierwszym tygodniu stycznia 2017 roku

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(Polski) Ceny uprawnień do emisji EUA zyskały prawie 30 proc. w ciągu ostatnich 10 notowań ubiegłego roku

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(Polski) Przegląd rynku CO2 w 2016 roku

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2016 summary

2016 has taught us to expect the unexpected. Let’s have a look on what shaped the price chart of the emission allowances.

January – Sanctions on Iranian oil export have been lifted after report of the International Atomic Energy Agency that the country reduced its nuclear facilities. The country planned to increase its daily production by 500,000 barrels. The International Energy Agency therefore warned that the oil market could be oversupplied. Brent and carbon prices fell hand in hand.

February – 70% of 2016 free allocation distributed by the end of February. Italy, Spain, Finland and Croatia were the countries that did not do their homework for the deadline.

March – Verified emissions of ETS installations declined by 7.3 million tonnes (-0.39%) in 2015 compared to 2014. The decline was in line with analyst forecasts.The French government proposed a carbon price corridor. If the EUA price is below a certain pre-defined price level, auctions would be cancelled and the allowances would be transferred into the market stability reserve (MSR). The floor would increase from 7 euro in 2017 to 30 euro in 2030. The European Commission rejected the idea from the beginning.

April – European gas and chemical companies lost a legal case before the European Court of Justice over free allocation. The Court ordered the European Commission to elaborate a new, strict methodology to allocate free allowances within 10 months. (Past allocation won’t be affected.)

May – On the last day of May, Ian Duncan the rapporteur in the European Parliament`s environment committee (ENVI) published his draft report about the post-2020 reforms of the ETS. He proposed the review of the linear reduction factor in 2023, a tiered allocation (four risk categories), avoiding the application of the cross sectoral correction factor, lowering threshold to opt out to 50,000 tonnes of CO2 and changing the compliance deadline.

June – The majority of the Britons preferred leaving the EU in the referendum 23 June. Should the UK also leave the EU ETS, industrial installations might pour their accumulated oversupply on the market and British utilities would stop hedging for the years they won’t be included into the EU ETS. On the day after the referendum Ian Duncan, the rapporteur of the post-2020 reforms submitted officially his resignation. The chair of the environment committee, however, has not accepted his resignation.

July – 20 July the European Commission published its proposal for the new Effort Sharing Regulation which determines the emission reduction goals of the EU member states outside the EU ETS for the 2021-2030 period. The reduction targets range from 0% (Bulgaria) to 40% (Sweden, Luxembourg) from 2005 levels. All member states will be allowed to use credits from reforestation (but only a total maximum of 280 million), but only nine member states are allowed to cancel 100 million EUAs to compensate emissions outside the EU ETS.

August – Auctions are halved in August every year, because the European Commission assumes that hedging activity of utilities is low in this month due to summer holidays and maintenance works. This year the auction volumes were cut even more. Five auctions on behalf of the EU have been cancelled on EEX, because the old contract between the Commission and EEX as the transitional EU auction platform expired and a new contract had to be prepared.

September – The French nuclear authority ordered reactors undergo additional safety checks that prolonged their planned maintenance time. Speculation started that the missing nuclear capacities would be replaced by fossil fuelled production in neighbouring countries, mainly in Germany. 28 September, OPEC countries surprised investors with a last minute agreement about cutting their production by 700,000 barrels per day. The announcement lifted the price of Brent by 8.4% in two days. The EU and seven member states ratified the Paris Agreement. This way the thresholds for the Agreement to enter into force were reached (55 countries representing 55% of global emissions signing).

October – The International Civil Aviation Organization (ICAO) signed a deal to offset emissions from international aviation. The measure, called carbon offsetting and reduction scheme for international aviation (CORSIA), consists of a global offsetting scheme, in which aircraft operators would be required, from 2021, to purchase emissions units, generated by projects in other sectors, to cover any growth in CO2 emissions above 2020 levels. Until 2027 the scheme will be voluntary (66 states already opted in) and from 2027 it becomes mandatory.

November – Republican candidate Donald J. Trump was elected the new US President. The outcome of the elections took market by surprise, but the negative reaction did not last long as the promised infrastructure investments and repatriation of production are expected to boost the US economy.
The COP22 in Marrakesh did not bring any development regarding the implementation of the Paris Agreement, as negotiators were busy with interpreting the consequences of the election of Mr. Trump. The lack of decision pushed the price of the CER price down by 28% between the end of the Conference and 30 November.

The European Commission published its so called Winter Package about implementing the EU’s 2030 targets.The draft law, which still needs to be approved by member states and the European Parliament, sets a binding target to cut energy use by 30% by 2030 and for renewable energy to make up at least 27% of the bloc’s power mix by 2030.

December – The environment committee of the European Parliament (ENVI) adopted a higher linear reduction factor of 2.4%, a higher MSR intake rate of 24% and cancelling 800 million allowances in 2021. The European Council was not able to agree on a common position regarding the post-2020 reforms. The vote in the Parliament is scheduled for February and the trialogue negotiations can start in spring.

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