W2: Carbon Market Price Index

W2: EU ETS

Following a sharp drop of 7% on 4 January, the EUA benchmark Dec-23 futures contract stabilized in a range between EUR 77/tCO2 and EUR 81/tCO2 during the past week. Monday, 9 January saw the return of auctions following the three-week holiday break. Traditionally a bearish signal, the negative price impact failed to materialize in the face of concerns that low EU prices might drive LNG towards higher prices in Asia. Throughout the week, carbon continued to take lead from gas, with more exaggerated bullish price sensitivity than the Dutch TTF feb-23 contract during Monday’s (9 Jan) and Thursday’s (12 Jan) sessions. EUAs ended the week at EUR 80.24/tCO2, up 2.18% from the previous Thursday’s (5 Jan) close of EUR 78.53/tCO2.

As we have seen since the end of December’s cold snap, milder weather than seasonal norms combined with strong renewable generation served to depress energy prices. Despite a brief rally on concerns over higher Asian gas prices, the Dutch TTF feb-23 contract remains at lower prices than have been seen through most of the previous year, trading between low EUR 70s and mid EUR 60s/MWh.

The sustained low gas price has spurred discussions that coal to gas fuel switching may begin to take place as coal prices have fallen more slowly, increasing the likelihood that gas generation may pick up. Fuel-switching would be a clear bearish signal for carbon; however, several factors will limit gas’s replacement of coal in the merit order. First, industrial demand is picking up. As power and gas prices have dropped significantly, the economic outlook for industrials has become brighter. More industrial activity will be bullish for carbon and for gas. Additionally, though prices have dipped based on an LNG glut and sustained high storage levels, gas supply may still be shaky for the continent when looking forward towards next winter’s storage.

As for policy, weare still awaiting the final texts from the ETS and CBAM trilogues that were concluded on 18 December. Speaking at an IETA event on 12 January, key negotiators from the European Parliament and the European Commission confirmed that the documents are currently being reviewed by linguists and lawyers. There is also a need to the agree on the wording of the recitals (the non-binding explanatory text that precedes the articles). European Parliament’s environment committee (ENVI) discussed the files yesterday, as a “report back from interinstitutional negotiations”, but this was not based on finalised texts, which are expected to be still some 2-3 weeks away. Assuming no hiccups they can be put to the vote in the Parliament Environment committee (ENVI) in February and in plenary in March.

While awaiting the final documents, we expect the policy scene to be relatively quiet from the perspective of the European carbon market. The ENVI committee will convene again on 16 January, to vote on the trilogue agreements reached late 2022 on the Effort Sharing and LULUCF regulations, two FF55 files that are important for emissions not covered under the EU ETS. This committee meeting will take place in conjunction with the 16-19 January plenary session in Strasbourg.

Another policy element on carbon traders’ radar is the REPowerEU plan that stipulates the sale of EUR 20 billion worth of EUAs. The deal, also clinched last December, envisages the frontloading of EUAs from the Innovation Fund and from the member states auction reserves for 2027-2030. The key question now is when the sales will start. The European Commission and lawmakers will seek to commence as early as possible, but first the REPowerEU regulation needs to be officially adopted and implemented. We can probably expect the EUA auction calendar for 2023 to be updated early summer, for a start of the REPowerEU sales sometime in H2.

In conclusion, policy is not likely to provide a strong signal next week. Instead, we expect the carbon market to take direction from fundamentals. Weather forecastssuggest an early, brief cold snap before returning to mild temperatures by the end of the week. The dip in temperatures will serve as a very short-term support for carbon, but the broader energy mix continues to imply a bearish trend. The expected continuation of mild weather will keep gas, power, and coal low – in turn limiting upside for carbon. Additionally, the return of French nuclear capacity, up to 73%, shifts some emphasis away from thermal generation, reducing the demand for EUAs.

From a technical perspective, the outlook remains bearish. Support at EUR 77/t was tested at several points in the previous week. This will be an important support level to watch for the week ahead. Without a major change to the technical picture expect a similar outlook to last week with range-bound trading between EUR 80.67/t and EUR 74.84/t.

For more information related to the EU ETS please contact 

W2: RGGI

New York sees advancement in its attempt to create an economy-wide cap-and-invest system

The RGGI V23 Future Dec-23 contract continued to fall for most of this week, with a slight uptick in price on Wednesday and Thursday. The week-on-week price increased 0.74% from last Thursday’s (05 Jan) settlement price of USD 13.50/st. The contract closed at USD 13.60/st this Thursday (12 Jan), a 4.21% increase from two days prior. Despite an uptick in prices on Wednesday and Thursday of this week, the overall low-price range seen this week can be attributed, in part, to the above-average warm temperatures seen throughout the RGGI member states that began after the severe winter weather seen during the Christmas holidays. The persistence of the unusually warm weather has reduced demand for fossil fuels and, therefore, for carbon allowances. This reduction in demand has, in turn, driven down contract prices on the market.

Dissuaded interest in the market as a result of the delay in the Third Program Review has further contributed to the low prices for the RGGI V23 Future Dec-23 contract seen this week. RGGI’s Third Program Review is intended to give an in-depth review of the carbon market and its functionality in order to determine if there are any necessary changes or updates that need to be made. The review was intended to be in the fall of 2022 but was delayed to the spring of this year. Despite claims that the delay will not interfere with the review’s originally planned completion date by the end of 2023, market participants are skeptical that this will be plausible. For more information regarding what the review entails, read 

Governor Glenn Youngkin (R) of Virginia announced on Wednesday that it will begin public comment on the state’s exit from the carbon market. This 60-day window for public comments comes as the state has advanced on the legislative process of leaving RGGI. This period of the process will give the opportunity for those Virginia residents in favor of the state’s participation in RGGI to express their opposition to the planned exit. It is likely that this advancement in the legislative prices played a role in the spike in prices for the RGGI V23 Future Dec-23 contract on Wednesday and Thursday.

In light of New York’s new Scoping Plan, Governor Kathy Hochul (D) said at the beginning of this week that state agencies will begin the process of designing an economy-wide cap-and-invest program. The New York Department of Environmental Conservation and the State Energy Research and Development Authority will spearhead the regulatory process for the carbon market design. The intended carbon market plans cover most sectors of the economy but will likely leave the state’s power sector in RGGI. 

Obtaining legislative approval by Republicans and Democratic to implement such a carbon market will be quite difficult due to the significant up-front costs

. It is claimed, however, that the carbon market would generate USD 1 billion in profits annually to help residents transition, particularly low-income residents. The Governor’s recent announcement, nevertheless, did not have any immediate impacts on the RGGI V23 Future Dec-23 contract price.

The downward price trend seen in the RGGI V23 Future Dec-23 contract from the beginning of 2023 is unlikely to persist over the coming week. The recent uptick in prices seen from Wednesday has set a tone of stabilization of the contract price. Although incremental growth is likely, persistent warm weather and market disinterest due to the delay in the Third Program Review and the legal proceedings regarding Virginia and Pennsylvania’s exit from the market will keep contract prices low throughout next week.

For more information related to RGGI please contact 

W2: WCI

Weather and anticipated policy changes stabilizing market prices

The CCA V23 Future Dec-23 contract saw a reversal of its downward trend in prices seen at the start of the new year. The contract price has increased 2.76% since last Thursday’s (05 Jan) clearing price of USD 29.40/t. The contract cleared at USD 30.21/t this Thursday (12 Jan); the highest closing price seen all week. The high seen on 09 January was accompanied by a spike in volume traded – totaling 7.048 Mt, the highest volume traded since 06 December. The recent rise in prices seen this week is attributed, in large, to the extreme weather conditions that continue to hit California. The severe rain, flooding, and winds that have disrupted the West Coast have increased demand for fossil fuels. The increase fossil fuel demand has increased allowance demand, resulting in higher prices for the CCA V23 Future Dec-23 contract.

The stabilization of the contract price seen this week is also due to increased market activity as companies are all back into full operations after the holiday season. Interest in the CCA V23 Future Dec-23 contract, and subsequent increases in price are also due to anticipating updates to the cap-and-trade system in response to the 2022 Scoping Plan. The Scoping Plan aims to achieve a 48% GHG reduction below 1990 levels by 2030, carbon neutrality by 2040, and an 85% GHG reduction below 1990 levels by 2045. Uncertainty in the extent to which the state will tighten its emission cap or reduce carbon allowances, and the effect that will have on the price, has spurred activity and long positions for the CCA V23 Future Dec-23 contract.

Further recommendations from the California Independent Emissions Market Advisory Committee (IEMAC) call to create significant updates to the cap-and-trade system – namely no-trade zones, which would prevent certain compliance entities in disadvantages areas from buying and trading allowances outside of the quarterly auctions. Such measures would weaken activity on the secondary market and increase auction bidder turnout. IEMAC released their draft of their annual report this week, which may have played a role in spurring market activity for the CCA V23 Future Dec-23 contract leading to slight increases in its price.

As severe weather is expected to continue in California, it is likely that these incremental increases in price seen this week will persist. Market interest in response to policy uncertainty pertaining to the carbon market as a result of the 2022 Scoping Plan will further play a role in keeping the CCA V23 Future Dec-23 contract price up. High interest rates and weak macroeconomic conditions, however, will mitigate any significant increases in price this coming week.

For more information related to WCI please contact 

W2: KOREA ETS

Low interest in January auction came as no surprise given the prolonged oversupply

On Friday (13 Jan), Spot KAU22 contract closed at KRW 15,850/t, up 20.5% week-on-week (KRW 2,700). Allowances continued to be sluggish, trading at lows of KRW 11,900 on Monday (9 Jan). However, some buying at the second half of the week pushed prices upwards and eventually exceeded the KRW 15,000 mark.

This year’s first monthly auction held on last Wednesday (11 Jan) was again undersubscribed for five times in a row. 1 Mt KAU22 was put on the auction this month, and six bids with a combined 643,000 KAUs of bids were submitted. Although the cover ratio is slightly increased from December’s 60 %, the actual number of allowances sold this month is almost half of the amount awarded on the previous month’s auction. Over-supplied market has long been pointed as a fundamental cause of this lack of bid interests.

Bids ranged from KRW 13,900/t to KRW 15,250/t. In case of undersubscription, auction settles at the reserve price. According to this rule, the allowances were sold at KRW 12,900/t, which was set KRW 1,000 lower than the lowest bid, yet actually very close to the volume weighted average price of the day before (10 Jan) at KRW 12,910/t.

Nevertheless, from Wednesday to Friday, Spot KAU22 price did not go below KRW 13,000/t to the level of auction settlement price, and rather climbed up above KRW 15,000/t on Friday (13 Jan). As KAU22 prices rise, offset credit KOC21-23 contract closed at KRW 15,000 on Fri (13 Jan), up 7.91% (KRW 1,100) from the previous day.

KAU22 trading volume this week totaled 408,797 tons, almost three times higher than the 2023 Week (154,210 t KAUs), recovering to the average weekly trading volume level similar to the previous month.

The result of the recent primary auction (11 Jan), where 357 kt of KAU22 remained unsold, will continue to weigh on prices. KAU22 price has been on a steady downwards slop since October 2022, with two attempts to rebound happening after reaching the lows of KRW 12,000/t.

Transactions are expected to begin in earnest after the submission of statements at the end of March. A new GHG emission reduction roadmap is supposed to be come out by the first quarter of this year. On top of that, the fear of new policy instruments which are currently under development and a dim prospect due to that are adding even more uncertainties to the market. We expect the current bearish sentiment to continue until market participants get a clearer picture of the supply of emission permits in 2022 and beyond.

This section of the article is written in collaboration with our partner company- Carbon-i (http://www.ecoeye-int.com/)

For more information related to Korea ETS please contact 

W2: China ETS

Further analysis of China ETS will be published in Greenfact’s monthly report.

For more information related to the China ETS please contact 

W2: VCM 

No sign of recovery in the VCM, as prices remain flat

The NGO Dec-23 remains the most liquid contract among the three CME’s voluntary carbon emissions contracts, with total traded volume in 2023 alone reaching 3,359 MtCO2, followed by GEO with a total of 984 MtCO2 and CGO at 484 MtCO2. The NGO Dec-23 contract was settled on Thursday (13 Jan) at USD 4.77/tCO2, followed by the GEO Dec-23 contract closing at USD 2.96/tCO2, and the GEO Dec-23 contract at USD 0.9/tCO2.

The CGO Dec-23 contract remains flat, with no sign of opening positions since the beginning of the year. Traders seem to be showing little to no interest in the market as the traded volume lingers below 10 MtCO2 except on a few exceptional days when it reached 217 MtCO2 (9 Jan), leading to a shaky week-on-week change of -3.23%

The GEO Dec-23 has shown bearish signs since the beginning of 2023 as traders enter positions in a downtrend. After a slow start marked by low traded volume in the first week of the year, there seems to be an increasing interest in the market as the traded volume started to pick up at the beginning of this week (09 Jan) at 110 MtCO2 and 474 MtCO2 on 12 Jan. The increasing trading volume despite the downtrend (week-on-week change of -7.21%) signals worries from the market participants as the market remains uncertain during the first few weeks of 2023.

Until 10 Jan, the NGO Dec-23 had been showingsigns of bearishness with the increasing open interest in a downtrend since the year started, with total traded volume peaking at 1,061,000 tCO2. The nature-based contract then continued to trade in a downtrend with decreasing open interest till 12 Jan with the week-on-week change of -17.33%.

a recent survey released by Conservation International and We Mean Business Coalition

seem to agree that carbon credits are a valuable tool in climate mitigation, the near-term market outlook remains uncertain. The VCM shows no sign of rapid recovery as the market is still waiting for updated guidance. Market participants are anticipating the outcome of the public consultation on the 

Core Carbon Principles (CCP) by the Integrity Council for the Voluntary Carbon Market

 that is set to be published in the Q1 of 2023 to seek clarity around the issue of carbon credits quality, such as additionality, double counting, registry, etc. Furthermore, the 

public consultation by the International Organization of Securities Commissions (IOSCO)

, first released in November 2022 during COP27, is expected to provide clarity around offsetting and the implications of article 6.4.

On 9 January 2023, the Inevitable Policy Response (IPR), as part of the UN Principles for Responsible Investment, launched 

Forecast Policy Scenario + Nature (FPS+N)

, the world’s first integrated climate and nature scenario to 2050. With policies and regulations (i.e., TNFD) start emerging as a response to declining nature and biodiversity, IPR forecasted nature-based solution (NBS)-based carbon credits to improve in quality with more focus on positive biodiversity outcomes and a total revenue potential of USD 22 billion in 2030 and USD 204 billion in 2050. The increasing alignment toward reporting on nature and climate standards is also expected to drive the demand for NBS-based carbon credits in the future.

For more information related to the voluntary carbon market please contact 

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Despite auction return, EU carbon ticks up, following TTF feb-23 contract

RGGI V23 Future Dec-23 contract sees uptick in prices towards end of the week, warm weather expected to keep prices from significant spikes going into next week

Severe weather conditions keep CCA V23 Future Dec-23 contract prices up, likely to continue into next week

Spot KAU22 price has risen above KRW 15,000/t yet the market prospect still remains dim due to the excessive supply and looming regulatory uncertainty 

Despite the high interest from corporations, the VCM Dec-23 contracts continue to trade in a downtrend with no sign of recovery as players still waiting for clarity

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