EUA allowances edged higher last week for first time since Brexit

The price of the European allowance in the EU ETS system edged higher last week after several weeks. The EUA was sold at EUR 4.87 at the end of last week, compared with EUR 4.52 at the start of the week. Allowance prices began to fall sharply ahead of Brexit and continued to decline afterwards.

The European EU ETS market is still not reaching allowance price levels that would significantly influence investors' approach to low-carbon technologies. Although the allowance rose last week for the first time since concerns ahead of Brexit emerged, it remains several times lower than had been planned when the market was being set up.

The allowance ended the week up EUR 0.35 at EUR 4.87. At the beginning of June, the European emissions allowance was sold on EEX for just over EUR 6.

“Allowance traders are beginning to recover from the initial shock following the Brexit vote.“

Jahn Olsen, Bloomberg New Energy Finance

As in other markets, the main cause of the price decline in recent weeks was the result of the referendum on the United Kingdom's withdrawal from the EU. This was followed by uncertainty over the United Kingdom's continued participation in the EU ETS market.

The United Kingdom ranks second in the EU by CO2 emissions volume, making it a significant player in the EU ETS market whose departure from the system would have a considerable impact on prices.

In addition, the United Kingdom has introduced its own CO2 emissions tax of approximately EUR 23.6/t CO2. This is cited as one of the reasons why the share of electricity generated from coal is declining in the United Kingdom, as coal is a more polluting source in terms of emissions than, for example, natural gas.

The European emissions allowance market has long been plagued by an oversupply of allowances, which is the reason for their low market price. Sweden has decided to set an example by reducing the volume of allowances on the market. It has earmarked part of its funds to annually withdraw some allowances from the market and allow unused ones to expire.