Carbon at new steady high, but European prices turmoil drive new debate of intervention in power markets

By Frank O. Brannvoll, Brannvoll ApS, Denmark

As usual, the carbon market set a new all-time high at EUR66 before falling 10 per cent to the current EUR60, five per cent lower than reported in ICR’s previous issue.

EUA front-year contract, January 2020-September 2021

A fundamental demand for EUA was seen as several coal-powered plants were put online, driven by higher gas prices. The dark spread was 2x better for coal-fired power production than with gas, setting a true demand for EUA buying.

However, discussions within the EU as power prices rallied to more than EUR300 on the November contracts led to talks of curbing the EUA price or forbid speculative players. This sent a wave of profit-taking and the price fell just below EUR60.

The European Commission and several member states reiterated that the EU ETS was to be seen as a market mechanism, and intervention or bans should not be implied. It remains to be seen what the outcome will be. The financial players are still in this for long-term play or carbon prices of >EUR80-100.

The EU Commission and MEPS have stated again that a level of EUR60 is of no concern. Brannvoll sees the price towards EUR100 in 2030 or even before, based on the currently-apparent political will.

The price is still supported by proposals of the reforms of the EU trading scheme, including:
• rebasing of the cap, increasing the linear reduction factor, reducing EUAs and aiming to phase out free EUA allocations
• setting up a Carbon Border Adjustment Mechanism (CBAM).

The Dec 21 contract fell five per cent MoM to EUR60. Unchanged technical view uptrend covers a EUR57-66 range for the next month. Major support is found at EUR57 and EUR50 while resistance is at an all-time high of EUR66. The long-term trend is still moving upwards and would break EUR50 to abandon this.