By Mathew Carr
Dec. 10-11, 2020 — LONDON: European Union carbon allowances advance to a record Friday after member nations agreed to cut emissions by at least 55% vs 1990 levels by the end of the decade.
The previous target was for a 40% cut.
Futures for December 2021 rise to about 31.30 euros a ton, according to ICE Futures Europe, before easing back. The previous record was 31 euros, a level matched Thursday.
A tighter target means a smaller supply of allowances and when they become more scarce they also become more valuable.
Other factors are boosting prices.
There are no auctions of allowances by EU countries for a month or two starting Dec. 15 … that’s Tuesday.
This Wednesday night, an emailed report by Tom Lord, trading and risk management specialist at Redshaw Advisors Ltd., said on the market’s outlook:
“The correlation with the wider energy complex remains high at present as EUAs struggle to set a convincing direction. That may change now the December EUA options have expired. The lack of auction supply continues to suggest EUAs will remain well supported and prone to further gains. However, with speculators likely already positioned ahead of the shutdown it may take further strength in the wider energy complex to drive gains before the auctions cease.”
OVER THE NEXT FEW WEEKS: There’s likely to be news on the transition from the Kyoto Protocol to the Paris climate agreement, Brexit, more nationally determined contributions under Paris this weekend, Biden’s climate plan, global trade talks.
Ingo Ramming, Commerzbank’s carbon trading guru, points out that the market’s wild ride since 2005 might be set to continue as the EU beds down its 2030 emissions-reduction target over the next few days/months/years. He posted this snip from Bloomberg on Linked In setting out the market’s history since 2005:
https://www.linkedin.com/feed/update/urn:li:activity:6742892035285495808/
See this story, highlighting the important role for carbon pricing going forward in the U.K. (and Europe):
http://carrzee.org/2020/12/10/the-three-new-friends-of-aggressive-climate-action-and-their-two-enablers-what-it-means-for-investors/
(Updated to include likely news over the next few weeks, during which there’ll be no primary market supply, updates with Commerzbank Friday morning, later with record levels)