The Price of Carbon and the EUETS – how will it affect CER prices?

December 21, 2011

In a move designed to shore up sagging carbon markets, with both EUA and CER at their Phase II lows, the EU announced that it would withhold permits from the market adding that the expected EUA price would be around 30 Euro.

On the 20th December 2011 European MEP added weight to this voting by a narrow margin to withhold some 1.4bn EUA from the auction markets. Point carbon tweeted @pointcarbonnews that a further vote may dilute the wording to ‘substantial volumes’ rather than an absolute target.

Since early 2011 EUA and CER prices have fallen from around 15 Euro to 5-6 Euro. On top this is Deutsche Bank was reported as stating with the current economic downturn the existing EU target of 20% by 2020 would be met without the need to purchase CER units.

Point Carbon also tweeted that there is a solid prospect of a vote on a 30% target.

Both these factors will have an interesting effect on the forward pricing of CER in particular. Many brokerage houses have been caught ‘long’ in carbon with some attributing recent losses to their positions in the carbon market. Part of the dramatic collapse can be attributed to those with long positions being automatically sold out of the market by stop loss orders.

Pricescarbon @pricescarbon indicated an increase in EUA to Euro 8.81 or around 20% in response to the announcements