EU carbon prices reach new lows

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EU carbon prices continue to plumb new lows for the EU-ETS second phase with benchmark prices trading below the €12 mark. Prices have slumped on the realisation that world recession is setting in, producing a very gloomy industrial outlook around Europe.

On January 28, the Dec 09 EUA contract closed at €11.74 on the European Climate Exchange, not far off its record closing low of €11.50 a week earlier.

Significant in January has been unhitching of carbon prices from oil – which had emerged as the major driver – both upwards and downwards in 2008. While the oil price has stabilised and recovered somewhat from its lows at  $36 per barrel, carbon has kept dropping.

Societe Generale says the fundamental driver of EUAs now appears to have switched from energy prices to “the CER supply-demand position”. CERs a fully substitutable for EUAs in the EU ETS and the spread between CERs and EUAs has now shrunk to €1.50. But the uncertainty that has always surrounded CER supply has taken on a new dimension with prices now so low as to make many new offset projects unviable. This may eventually see CER supply drop and underpin demand and prices for EUAs, Soc Gen says.

Also weighing on prices is the ongoing sell-down of EUA holdings by those companies needing to boost cash flows as their core business revenues suffer in the downturn. Market volumes have, however, been robust since the Christmas-New Year Period ended, averaging around 11 million tonnes per day on the ECX.