EU Carbon Prices Drift In December

European Union emissions allowance (EUA) prices drifted further in December to end the year on a weak note as buy-side support dried up.

EUAs for delivery in December 2011 took up the front-year position on the forward price curve after December 2010 over-the-counter contracts went to expiry on Dec. 1.

December 2011 EUAs closed at €15.10 ($20) per metric ton on Dec. 1, and drifted lower through the month to close at €14.05 on Dec. 24, which was the lowest price since July 27.

Traders said buyers were still present in the market but were not buying in sufficient volume to drive prices higher. The thin trading conditions also exaggerated the effects of a lack of buy-side support.

Some traders said companies with a natural shortage of EUAs such as utilities would be expected to re-enter the market in the first quarter of 2011 as they seek to hedge forward sales of power.

The weakness seen on carbon prices during November and December was also underpinned by rising coal prices, which make the emissions-intensive fuel less profitable for power generators, prompting those that can to burn cleaner natural gas.

Coal for delivery into Northwest Europe climbed from $104.40/metric ton on Nov. 1 to $117.75/metric ton on Dec. 24—the highest price for more than two years.

As expected, the United Nations climate change talks in Cancun, Mexico, did not see much progress on a possible extension of the Kyoto Protocol’s binding emissions reductions for industrialized countries, which expire in 2012.

However, the gathering did lead to agreements that aim to further reduce global emissions, and helped to rebuild some of the trust lost between nations at the 2009 talks in Copenhagen.

The Cancun package includes an agreement in which both industrialized country emissions reduction targets and developing country voluntary actions are officially recognized under the multilateral process. Countries formally recognized the role of market mechanisms to achieve emissions reductions, and agreed to report their emissions on an annual basis.

It was also agreed to boost Kyoto’s Clean Development Mechanism to increase investment in emissions reduction projects in developing countries, and to design a Green Climate Fund under the U.N. to deliver climate finance to developing countries.


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