European carbon allowances rebound on Friday, rising above EUR 5/t

European carbon allowances rebounded after a prolonged decline, with their price rising above 5 EUR/t towards the end of the week. At the beginning of this year, their price was still above 8 EUR. Allowance prices also weighed on prices for wholesale electricity for delivery next year, which fell to as low as 21 EUR/MWh.

Despite Friday's increase, this is the sixth consecutive week in which allowance prices have declined. Last Friday, the price stood at 5.54 EUR/t. Friday's price rise was reportedly driven by strong demand on the German market and the rising oil price.

EU Carbon price breaks back above €5/t. A dead cat bounce or a return of market confidence? pic.twitter.com/QvycPX663r

— TR Point Carbon (@TRPC_Climate) 12 February 2016

According to one trader quoted by Carbon-pulse.com, the increase may have been caused by the closing of short positions ahead of the weekend, which could bring information leading to a rise in allowance prices.

The decline in allowance prices was one of the factors affecting electricity prices. In recent weeks, prices on the Czech and German exchanges fell to long-term lows close to 21 EUR/MWh. A modest increase in electricity prices on the German market resumed on Friday.

Discussion on the future of EU emissions trading

The European carbon allowance market will undergo a major reform in 2019. The so-called market stability reserve will be launched, with the aim of ensuring higher allowance prices and removing their surplus from the market.

ČEZ supports more free carbon allowances for industry

Last week, a debate involving 40 leading companies on EU emissions trading took place, focusing in particular on the role of the EU ETS after the Paris COP21 conference.

The discussion also covered the reserve mechanism, which is due to start operating in 2019. ČEZ representatives consider it an inadequate measure that will not resolve the surplus of allowances.

“The system will continue to have an annual surplus, and therefore will not incentivise a change in the energy mix and the construction of zero-emission sources. If we assume that emissions should be reduced by 2.2% of the volume of allowances every year, equivalent to 48 million tonnes of CO2, that is far from sufficient,” says Pavel Řežábek, director of market analysis and forecasting at ČEZ.

According to ČEZ, it is crucial that further climate legislation takes into account its impact on the European carbon allowance market. It is also important to preserve the international competitiveness of European industry, which can be achieved through a greater number of allowances allocated free of charge to industrial companies.