EU carbon market analysts in December 2018 predicted that sharp price volatility seen in the second half of the year would continue into 2019. As of early January, they’ve been proved right. After surging close to 10-year highs of over Eur25.00/mt ($28.65/mt) in December, carbon prices crashed back below Eur22.00/mt in the first few days of January. And that’s likely a sign of things to come in the rest of 2019 as the market grapples with highly significant factors, both bullish and bearish, that are certain to shape price formation this year. In short, a now more finely-balanced carbon market will lead to increased price volatility because a smaller cushion of surplus supply will leave prices more sensitive to demand-side changes. Europe’s flagship policy tool to reduce carbon dioxide emissions from power plants, factories and airlines got a major regulatory overhaul in 2016-2018, after the EU passed key measures into law. Those included the Market Stability Reserve, which reduces a long-term surplus of carbon allowances by 24% per year from 2019-2023, helping to re-balance the market and propelling prices to 10-year highs in 2018. Mild weather restrains prices At prices of Eur4.00/mt to Eur8.00/mt in 2017, carbon made little difference… continue reading
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Source: CTRM Center