By Frank O. Brannvoll, Brannvoll ApS, Denmark
Carbon prices rose above EUR85 as increased compliance buying was seen due to a sharp upturn of coal-fired power generation in the EU, resulting in an estimated 60Mt of additional emissions.
The demand was three times higher than the auctioned amounts in the latest auction, significantly supporting the exchange traded market.
The speculators, which disappeared during March, appear to have returned to the market following the rise in the carbon price to above EUR80. Financial players are estimated at having increased their long positions by 40 per cent.
The market is now driven by political news and how equity markets are performing, as well as an enhanced focus on green energy. However, in the long term this will make coal and gas burn lower.
According to analyst group Vertis the market stability reserve (MSR) mechanism could absorb 321Mt of EUA in 2022-23, increasing the tightness of the market.
In April the European Parliament voted to support a prolongation of the MSR until 2030, as part of an overall revision of the EU ETS.
Figure 1: EUA front-year contract
The EUA Dec 22 price is seen at EUR91.85 with an expected range of EUR85-95 (see Figure 1) with the former top of EUR85 setting a new floor. The EUR95-99 all-time high is still seen as major resistance and would need a specific event to break.
Brannvoll ApS forecasts for 2022 a trading range EUR65-100, with an average of EUR80.
