EU carbon dioxide allowance prices under the EU Emissions Trading System rose by 12.9% in the past week compared with the previous week extending their rally to a fresh six-year high ahead of key annual data to be published in April.
EU Allowance futures contracts for delivery in December 2018 on the ICE Futures Europe traded above Eur13/mt (about $16/mt) Thursday morning for the first time since March 2012. They closed Friday at Eur12.61/mt, up by Eur1.44 on the week amid strong intra-day volatility.
Traders said the carbon market was influenced by multiple bullish factors, including expectations for supply-tightening market design and expectations of higher carbon emissions.
The UK's announcement, earlier this week, that it intended to stay in the ETS until the end of 2020 also had a bullish impact on prices, a source said.
Another trend is improving coal-fired power generation economics, according to S&P Global Platts analysis.
Colder weather in February and March has already increased coal-fired output in Q1, boosting demand for EUAs from coal plant operators.
At the same time, the cold weather has lifted European gas prices amid very low gas storage levels, while coal prices eased, which could extend the rebound for coal into the summer season, the data shows.
Front-year coal into Europe fell Friday to an eight-month-low at $73/mt.
Higher EUAs are generally seen as incentivizing the switch from coal to gas, but some of the recent EUA gains have been offset by reverse trends for underlying coal and gas prices.
EUAS UP 60% SO FAR THIS YEAR
EUA carbon allowance prices have more than doubled since last summer and are up 60% so far this year, rebounding from multi-year-lows in 2016 when the market was heavily oversupplied.
Reforms to the ETS are now "rectifying" the supply surplus by introducing the Market Stability Reserve (MSR), which is set to cut the cumulative surplus by 24% per year, starting 2019.
This is expected to reduce auction supply by about 40% next year.
Meanwhile, European energy-related emissions in 2017 rose by 1.5% or 47 million mt, reversing recent declines, according to a new report by the International Energy Agency published Thursday.
The annual verified CO2 data for 2017 will be published by the European Commission after the Easter break on April 3.
