Bearish sentiment on the carbon emission market

The price on a CO2 quota has dropped by more than 20 % since it peaked in September, and the question is, if we have seen the top of the big gains during 2018.

The European market for carbon emissions has seen massive gains throughout 2018. After opening the year with a price level around 8 EUR/t, the quota price tripled during the year, so market was trading above 25 EUR/t in mid-September. It was first and foremost high buying interest among the big players on the market, such as heavy industry and coal-based power producers that helped shooting the prices upwards.

Since September, however, the market has changed direction and Wednesday, the price on a quota dropped below 20 EUR/t. This means that the market has now fallen by 20 % since mid-september, as several signals now indicate that the general sentiment has changed following the long-lasting upturn earlier in the year. Across the fuel complex, we see falling prices at the moment, and the losses on the coal and gas markets in particular are offering bearish support to the carbon emission market.

Earlier this week, the EU’s environmental and climate ministers summited to position themselves ahead of December’s UN climate conference in Poland. There are still noticeable disagreements among the union’s member nations regarding the climate policies. The ministers of several countries argued for strengthening the EU’s official climate ambitions towards 2030 and 2040 but the participants failed to reach a consensus on this topic.

The political uncertainty on the climate topic also adds to the bearish sentiment on the carbon emission market. Disagreements and lack of will to strengthen the climate ambitions are seen as a bearish signal from the players on the market.