EUA falling below EUR80 on lower energy complex

By Frank O. Brannvoll, Brannvoll ApS, Denmark

December was characterised by low trading activity and high volatility. Driven by oil and gas the energy complex fell due to reduced power demand in Europe, lowering compliance purchasing.
While the dark spread is still offering higher value, some gas firing has returned, lowering the demand for EUAs.

The new front-year contract is trading with high volatility between EUR75-90 and major support still at EUR65. For 2023 Brannvoll ApS expects a range of EUR60-95, with an average of EUR82.

EUA front-year contract, December 2020-January 2022

In the next few months, the implementation of the new EU ETS and CBAM rules will be followed closely.
In terms of CBAM and the EU-ETS the European Commission and Parliament agreed in December that CBAM will come into force from 1 October 2023 with a transition period that only has reporting obligations.

In addition, CBAM will apply a price on emissions to a range of EU imports in the following categories:
• cement, aluminium, fertilisers, electricity
• iron and steel, including some downstream products
• hydrogen.
The scope of CBAM will be assessed before the end of the transition period and might be extended to include other product categories.

CBAM charges will be calculated based on “embedded emissions,” which refers to emissions occurring upon manufacture, as well as indirect emissions. Where imported goods have been subject to carbon pricing regimes in their country of origin, only the difference between the price paid there and the price of EU-ETS carbon allowances will be paid. Payment of CBAM charges will be facilitated through the purchase of CBAM certificates. A programme of “free allowances” will be applied to CBAM certificates initially, similar to the EU-ETS.

Furthermore, the carbon reduction target was increased from 43 to 62 per cent in 2030. The linear reduction increased from 2.2 per cent to 4.3 per cent between 2024-27 and 4.4  per cent between 2028-30.