EU Carbon Market: Overview of Trends,Insights, Developments - January 2024

European Energy Markets in 2024: Navigating Carbon Pricing, Power Market Dynamics, and Regulatory Changes

In this article:

1. EUA Prices Witness a Downward Trend as the New Year Unfolds

2. Short-Term Price Forecast

3. Market Dynamics

4. Spot Prices Rise Amidst Cold Spell and Weak Wind Production

5. Power Curve Prices: A Response to Gas Market Dynamics

6. Record-High Revenue from Carbon Allowance Auctions in Germany

7. CCA, RGGI, WCA and UKA Market Updates and Developments

EUA Prices Witness a Downward Trend as the New Year Unfolds

In a striking development for the first week of 2024, the European Union Allowance (EUA) prices experienced a noticeable decline. The weekly average plummeted by 4.40% from the last week of 2023, settling at €73.70. This shift marks a significant turn in the market, differing from the relatively stable prices observed in the closing weeks of the previous year. Such movements underscore the volatile nature of the EUA market, influenced by a range of factors including policy updates, economic forecasts, and broader energy market dynamics.

Short-Term Price Forecast: A Narrow Range Expected

The short-term outlook for EUA prices suggests a constrained fluctuation in the coming four weeks. Forecasts predict a range between €73.70 and €75.98, indicating a period of relative stability but with a cautious upward bias. This forecast hinges on several factors including industrial activity levels, ongoing legislative changes, and broader market sentiments, especially regarding energy prices and supply dynamics.

Market Dynamics: A Tale of Two Exchanges

The European Securities and Markets Authority (ESMA) reported contrasting trends in open interest for EUA futures at two major exchanges. ICE Endex witnessed a 2.96% increase from 8th to 15th December 2023, reflecting a growing interest in EUA futures. Conversely, the European Energy Exchange (EEX) experienced a sharp 41.14% decrease from 15th to 29th December 2023. These divergent trends highlight the differing strategies and risk appetites of traders across platforms and could be indicative of a shift in market preferences or a realignment of positions in response to end-of-year market conditions.