Carbon price in range with new changes to EU-ETS and increased coal demand supporting prices

By Frank O. Brannvoll, Brannvoll ApS, Denmark

Carbon prices remained as expected inside the uptrend channel of EUR82-95 with high daily volatility.
Russian cuts in natural gas deliveries sent gas prices sharply higher, increasing compliance buying for higher coal burn.

The EUA has seen new negotiations on the reform to the EU-ETS system all being bullish.
The main elements now to be discussed in the European Council are:
• increase in the linear reduction factor (LRF) to 4.2 from 2.2 per cent from 2024
• reduction of 177m allowances in 2024
• keep the Market Stability Reserve (MSR) intake at 24 per cent, not reducing it to 12 per cent in 2024
• Phase out free allowances by introducing the carbon border adjustment mechanism (CBAM) between 2026-35. cembureau wants this step carried out more rapidly.

As it could reduce liquidity substantially, the proposal to only allow companies within the sectors to trade in the EUA market seems to be watered down.

Figure 1: EUA front-year contract, November 2020-June 2022

The EUA December 22 price fell to EUR86.50 and remains in an expected range of EUR83-96 in the uptrend (see Figure 1). The all-time high of EUR95-99 is still seen as major resistance. Analysts are calling for a break above EUR100.

For 2022 Brannvoll ApS forecasts a trading range of EUR65-100, with an average of EUR80.