Isra-Mart srl: EU carbon price plunges to record low as focus returns to Greece

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Carbon prices on the European Emissions Trading Scheme (ETS) fell to a fresh low yesterday as the market continued to be weighed down by the Greek debt crisis.

Benchmark EU Allowances (EUAs) hit a 29-month low of €11.05, before rebounding slightly to close at €11.43, 2.64 per cent lower than the close on Tuesday.

Year-ahead certified emission reductions declined proportionally more than EUAs, according to an analyst note from IDEAcarbon, with Dec‐11 CERs finishing at €8.30, 3.6 per cent lower than the previous day.

German 2012 base power was the hardest hit of the energy complex, losing 1.14 per cent.

Matthew Gray, analyst at IDEACarbon, blamed the sluggish market on macroeconomic concerns, suggesting that the focus had returned to the eurozone after the US finally passed a debt limit bill earlier this week.

"With the US no longer on the brink of default, the focus is back on Europe. This potentially bodes worse for carbon, since a weakening euro is not only a bearish indicator for European demand but hits the clean dark spread, which has dropped a considerable €0.38 as of midday CET," he said yesterday.

Gray added that almost all movement lately has been associated with sovereign debt problems in the EU and the US, which have created significant downside risk for carbon in terms of low economic growth prompting waning demand for carbon, but also "a costly and cagey" credit market which could potentially drag EUAs lower as utilities seek to boost cash flows.

The analyst forecast a "very poor" outlook for the third quarter because of the absence of utilities hedging their exposures for phase III of the ETS, which starts in 2013.

"We expect to see an uptick in 2012 when utilities start to enter the market to cover their phase III obligations," he said.

Trevor Sikorski, director of carbon markets research at BarCap, agreed that the sovereign debt crisis was the biggest cause of the drop.

"There's still a lot of bearishness with regards to the EU economic situation," he said, predicting little upside over the next month.

Mark Lewis, director of global carbon research at Deutsche Bank, recently predicted that prices are likely to remain subdued over the course of Q3 in the range of €12 to €14 a tonne because of the summer holidays, and that there is "little reason to expect positive newsflow over the coming months".

Prices in the ETS have remained low following a sell-off in June prompted by Greece's debt crisis.

More broadly, the market has been deflated by security concerns prompted by cyber attacks in January, as well as European Commission energy efficiency plans, which mean that companies need fewer credits to achieve their reduction targets.