The price for European Carbon Allowances (EUAs) continued its bullish trend, increasing by 11% over the course of January. [1]
Despite a warmer than usual January, demand for EUAs remained strong as industrial production is strong and the high gas prices incentivise burning coal (instead of gas) for fossil fuel fired power generation. In addition, covered emitters now know their 2021 annual emissions, and have time until end of April to acquire additional EUAs to close any gaps. This "compliance buying" is expected to be a strong source of demand in Q1 2022, especially as the annual free allocation hand out (which usually happens in February) is delayed. [2]
On the supply side, auctions started on 10th January, leaving the first week without any fundamental supply. In addition, the corporates holding surplus EUAs remain reluctant to sell as they fear prices to rise even further and thus prefer holding on to their stocks. [1]
On the policy side, the discussions on the Carbon Border Adjustment Mechanism (CBAM) and the reform of the EU ETS to implement the more ambitious 2030 goal are gaining traction now and first amendments are being published. [3] For example, the draft report from the rapporteur on the CBAM file includes a more expansive coverage and a swifter start of the new tool. However, it remains to be seen if this prevails the negotiations in the European Parliament and the European Council.
Source: EU Commission, EEX, SparkChange. Please note that all performance figures are showing net data. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product.
EUA Market Outlook
For the next few months, a key focus will be on the tensions around Ukraine, the weather, and the political discussions in Brussels and the national capitals. A war in Ukraine, a cold spell or a more ambitious CBAM/EU ETS reform can all provide additional support to EUA prices. [1]
On top of that, the pressure for corporates to acquire EUAs in time for the compliance date end of April will drive additional demand, so that it is likely that EUA prices continue its bullish trend. [4]
|
|
1M
|
3M
|
6M
|
YTD
|
12M
|
SI
|
|
SparkChange Physical Carbon EUA ETC
|
-11.46%
|
50.95%
|
NA
|
11.46%
|
NA
|
51.36%
|
|
EEX EU Spot (Phase 4)
|
11.54%
|
51.28%
|
66.73%
|
11.54%
|
169.99%
|
51.69%
|
Performance before inception is based on back tested data. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. Source: Bloomberg / HANetf. Data as of 31/01/22. Please note that all performance figures are showing net data.
Learn more about our Physical Carbon ETC
Download the PDF