Utilities have stepped back from the market, ahead of talks to reform the supply which has driven prices lower than since the start of the recession, causing the price of carbon emission allowances to drop to it’s lowest level in two months.
The price for carbon paid on the European Union’s emissions trading scheme (ETS) stumbled almost 10 per cent lower than its intra-month high, to change hands at around €5.91 per metric tonne of carbon on 16 September.
Prices are now a fraction of where there were in early 2009 when allowances were priced at over €25/mt, and were expected to incentivise a move away from high-carbon power generation.
“A continued absence of utility players emboldened the bears,” a client note from CF Partners said of the two month lows.
The losses come ahead of talks in Brussels in the coming week over reforming the chronic oversupply within the market through a market stability reserve (MSR) in the hope of helping prices to recover.
CF Partners said that a reluctance to trade on the part of Europe’s major utilities is also playing a role in the weaker price signal.
“The reasons for the turn in sentiment and lower prices can be summarised as follows: firstly, there is a realisation of likely delays to the discussion and negotiation of market reform and MSR implementation; secondly, the market adjustment to higher post-summer auction volumes, and thirdly because of weak interest from utilities on the buy side of the market given weaker generation margins,” the note said.
It also said that technical weaknesses may have caused the losses since the market reached highs in August. The firm believes that further losses are possible in the near future at around €5.75/mt.
The European Parliament is expected to resume talks on the proposed market reform on 24 September.