Carbon market recovers from steep decline, supported by speculative buying and European and French election outcomes

By Frank O. Brannvoll, Brannvoll ApS, Denmark

The political influence in the EU ETS market was underlined during June, where the market fell sharply up to the 9 June parliamentary election. The market recovered towards EUR70 as the result materialised, and the fear of a major shift to the right vanished as the centre right parties of the EP kept a majority and the re-election of Van der Leyen as head of the Commission. The belief is that the green transition will not be rolled back but will most likely face a more uphill road than before. Meanwhile, the result of the French elections is expected to lead to a similar outcome.

However, with the fall below EUR71 the long-term uptrend has been broken. The market has moved into a range of EUR65-75. In fact, it is the first time in six years June had a negative price-development.
Speculators entered back into the market, as the support level of EUR66 was reached in correlation with positive equity markets.

Figure 1: petcoke discount to coal – API2 USGC 6.5% USGC ARA based on 6000kcal: Jul 2023: 36%

To recapture the uptrend the market needs a close above EUR73. A new narrow trading range is seen at EUR66-73.

Long-term prices for 2030 are slightly down at EUR88. The current December 2024 (Dec24) price fell 2.5 per cent to EUR70.

The UK Allowance (UKA) December 2024 price is unchanged at GBP45 (EUR53) and decreased its discount to 23 per cent to the EUA. The UK election was seen as positive for the UKA price.

Brannvoll ApS maintains the forecast for 2024 to range between EUR55-95 with an average of EUR80 for the Dec24 contract.