Carbon could rise further during summer

During the next months, the European carbon emission market will trade around a 10-year high price level, according to experts.

The European carbon emission market has started to make some noticeable fluctuations again. Following some calm months with range-bound trading, the carbon broke above 27 EUR/t in late June, followed by a downturn in early July. Now, experts from the analysis agency Refinitiv projects, that the market is set for rising prices during the coming months.

In a new report, which Refinitiv published Thursday, the company’s analysts announced, that they expect an average carbon price of around 27 EUR/t during Q3. This would be a modest increase compared to the current price level of just below 26 EUR/t. The upturn on the market will be caused by decreasing volumes on the EU-sanctioned quota auctions, where the number of quotas put up for sale will drop by around 50 % during August. This could lead to rising prices on the market.

During 2019, it has limited the upside on the carbon market, that coal has lost a large part of its share in the energy mix to gas. This has caused falling demand for CO2 quotas as well. Refinitiv does however not believe that the this development will continue, which makes increasing carbon emission prices more likely during the coming quarter of the year.

The market continues to keep an eye on the Brexit debate, which currently is close attached to the election of a new PM in the UK. The Brexit insecurity continues to limit the upside, but the market has probably to some extent priced in the probability of a potentially new British PM, Boris Johnson, who is more positive regarding Brexit.

If the benchmark quota contract manages to break above 27.53 EUR/t, it would be the highest price level on the market in around 11 years. It is very likely that this will happen this summer, especially if Europe experiences a new heat wave, which would increase coal demand.