Macro Outlook
April marks the last month of the annual EU ETS compliance cycle, as companies covered by the EU ETS need to surrender EUAs for their 2021 emissions by 30th April 2022.[1] While historically EUA prices tend to be bullish in April, this year’s price action was rangebound, except for a short-term jump during the last week of April.
The publication of the preliminary 2021 emissions data on 1st April brought no surprises, the data suggests that emissions covered by the EU ETS increased by around 7.5% last year.[2] From a fundamental perspective, the ongoing conflict in Ukraine and the resulting high natural gas prices continue to dominate; on the one side, it remains cheaper to burn coal over gas, so that the power sector emissions remain high. In contrast, however, the rising inflation and high commodity prices could result in a slowdown of economic growth and, with that, emissions, so that market participants see a more mixed picture going forward. [3]
On the regulatory side, the EU “Fit for 55” reform as well as the MSR review advanced in the process; the MSR review was approved by the EU Parliament and is now heading to the EU Council. The “Fit for 55 reform” saw a controversial vote in the Parliament’s industry committee, which included an amendment to curb speculative activity in the EU ETS.[4] The leading Environment committee might take this into account when voting in May on its report before the text goes to a full plenary vote.
EUA Market Outlook
The market fundamentals remain mixed: The macro environment creates a higher uncertainty on emissions development. On the other side, the ongoing operation of the Market Stability Reserve (MSR) keeps curbing supply of fresh allowances, so that the market remains tight overall.
May could show some important developments on the regulatory side, with the publication of the MSR withdrawal volumes as of September as well as the EU Parliament’s Environment committee’s vote on the “Fit for 55” reform. [5]
Events to watch
15th May – EU Commission to release updated MSR statistics, including the Auction withdrawal rate as of September 2022
16/17th May – EU Parliament’s Environment Committee to vote on the Fit for 55 reform.
|
|
1M
|
3M
|
6M
|
YTD
|
12M
|
SI
|
|
SparkChange Physical Carbon EUA ETC
|
10.10%
|
-5.60%
|
42.50%
|
5.22%
|
NA
|
42.89%
|
|
EEX EU Spot (Phase 4)
|
10.18%
|
-5.39%
|
43.12%
|
5.53%
|
72.36%
|
43.51%
|
Please note that all performance figures are showing net data.
Source: Bloomberg / HANetf. Data as of 30/04/2022
Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. 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.
Learn more about our Physical Carbon ETC