Macro Outlook
Price movements in May were driven by policy developments in the European Parliament and the European Council.
Early in the month, prices weakened rapidly from around 86.00 €/tonne to under 80.00 €/tonne in anticipation of the initial plenary vote of the Fit-for-55 package in the European Parliament. This was due to a less ambitious compromise emerging compared to the position of the ENVI Committee. In a dramatic session on the 8th of June, the plenary referred the EU ETS revision alongside other files from the Fit-for-55 package back to the Committee as the compromise was in the end not supported by enough Members of Parliament. [1]
However, the parties managed to forge a more stable compromise quickly and the files came back to the plenary for vote on June 22nd. In the meantime, prices returned to the previous levels of 86.00 €/tonne before trading rangebound 84.00 €/tonne. [2]
On June 22nd, the plenary adopted the compromise with a large majority.[3] The overall ambitious compromise includes: 63% overall EU ETS reduction target by 2030, a two-fold cap reduction by 70 Mio in 2024 and 50 Mio in 2026, new MSR thresholds, a phase-in for CBAM between 2027-2032 and a 100% inclusion of maritime. It further amends article 29a (emergency measure for very fast, high price increases) and limits the access of physical holdings to compliance entities. [4]
As the second co-legislator, the Environment Council met on June 28th to conclude on a General Approach for the Fit-for-55 files.[5] The General Approach is broadly in line with the proposal from the European Commission, but diverts slightly regarding Article 29a, the phase-in of CBAM, and the benchmark for hot metal production.
On top of the political developments at EU level, Germany’s Economy and Climate Minister, Robert Habeck, announced on June 23rd, that Germany triggered the second stage of its gas emergency plans.[6] This means that the German lignite and coal reserve power plants, roughly 10 GW, will likely come online this winter increasing German power sector emissions. [7]
Source of all data: EU Commission, EEX, SparkChange. All data as of 30.06.2022.
EUA Market Outlook
While political decisions highly affected EUA prices in May, in June political decision makers continue to meet and discuss the Fit-for-55 package as well as the REPowerEU package. [3] While no votes are scheduled, additional opinion and direction can emerge from Parliament as well as Council meetings.
Developments around the gas flows from Russia into the EU could have a drastic and quick impact on emissions in the EU ETS and therefore drive price developments in the coming months.
Events to watch
Mid-July - Potential start of trilogue negotiations.
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1M
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3M
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6M
|
YTD
|
12M
|
SI
|
|
SparkChange Physical Carbon EUA ETC
|
7.25%
|
17.47%
|
12.26%
|
12.26%
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NA
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52.46%
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EEX EU Spot (Phase 4)
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7.33%
|
17.73%
|
12.76%
|
12.76%
|
59.59%
|
53.35%
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Please note that all performance figures are showing net data.
Source: Bloomberg / HANetf. Data as of 30/06/2022
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.
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