The seventh week of 2024 brought forth a series of noteworthy developments across various fronts. From the European Union Allowances (EUA) to the UK Allowances (UKA), California Carbon Allowances (CCAs), Regional Greenhouse Gas Initiative (RGGI) Allowances, and Washington Carbon Allowances (WCA), each market segment exhibited distinctive trends and responses to economic indicators and regulatory shifts.
European Union Allowances (EUA) πͺπΊπΉ
The EUA market saw a continued downward trajectory, with the weekly average prices dropping by a significant 7.51%. This decline, attributed primarily to low gas prices and reduced industrial activity, marked a new record low for EU carbon prices at β¬54.50. The transition from coal to gas, alongside the growing prevalence of renewable energy sources, contributed to this consistent downtrend.
However, amidst these challenges, emerged a potential buying opportunity as EUA prices are projected to drop further in light of weakening gas prices. Analysts are urging strategic long positions, considering 2024 as a pivotal year for building robust investment strategies within the carbon market. According to a European bank analyst, 2024 could be "the year to build strategic long positions" as EUA prices are set to fall to three-year lows, influenced by weakening gas prices and low demand from compliance buyers.
The European market for electric vehicles is facing challenges, not from a lack of consumer demand but due to the inability of carmakers to offer affordable models. This contradicts the popular belief that consumer apathy is to blame for the slowdown in EV production.
The European Commission's pilot auction for renewable hydrogen production saw bids far exceeding the available β¬800 million budget, indicating a strong interest in scaling up the industry.
Additionally, over 60 CEOs of European heavy industries are gearing up for a summit in Antwerp to discuss a European Industrial Green Deal, signaling a collective effort towards sustainable industrial practices.
UK Allowances (UKA) π¬π§π°
In contrast to the EUA market, UKA prices experienced a marginal 1.1% decrease. However, this slight dip was accompanied by a surge in long-term investor interest, evidenced by a 4.77% increase in open interest on ICE Futures Europe. Despite this, net lending growth to large UK companies remained sluggish, indicating subdued credit demand within the industry.
The UK government has released an updated list detailing free allocations to industrial installations for the years 2021 to 2025. This revision incorporates adjustments to carbon allowance distributions following an assessment of individual plant operations in preceding years. As a result, carbon permit handouts have been reduced by 1.4%, signaling a tightening stance on emissions within the UK Emissions Trading Scheme (ETS).
California Carbon Allowances (CCAs) ππΌ
The CCAs witnessed a retreat from the price rally, marked by a second consecutive week of decline. The market sentiment turned bearish following the postponement of the LCFS board meeting, raising concerns about the future trajectory of cap-and-trade policies. The higher-than-expected rise in inflation further dampened investor expectations of interest rate cuts, contributing to the downward pressure on CCA prices.
Regional Greenhouse Gas Initiative (RGGI) Allowances ποΈπ‘
Amidst these fluctuations, RGAs remained relatively stable over the week. However, market investors maintained cautious optimism regarding the anticipated release of the Third Program Review draft post-auction. The decision by Virginia's Floyd County circuit court judge to allow a lawsuit seeking to reinstate RGGI in Virginia added an additional layer of interest to the market dynamics.
Washington Carbon Allowances (WCA) π²πΈ
The WCA market witnessed a rebound following the passage of the Linkage bill in the Senate, signaling a shift in the program's optics and reinforcing its long-term, regionally integrated future. Prices rose above $35, marking a 4% increase from the previous week, albeit with continued volatility anticipated until the November ballot. The upcoming Washington Auction #5 on March 6th, offering 7.40 million allowances for sale, presents a significant milestone for market participants.