European carbon prices climbed back into positive territory after EU member state officials gave their stamp of approval to the MSR on Wednesday, allowing the measure to clear one of the final hurdles to becoming law.
Front-year EUA futures hit a session trough of €7.52 just after 0900 GMT following a lacklustre UK auction result, down 11 cents from Tuesday’s settlement.
The British government sold 3.123 million spot EUAs for €7.46 each, some 5 cents below prevailing spot market prices and 9 cents below the price of the Dec-15 futures at the time the auction ended.
The sale attracted bids equivalent to a total 4.9 million units from 12 bidders, auction hosts ICE Futures Europe said.
The benchmark contract then rose back into the black after news broke that most EU officials convening at a Coreper meeting in Brussels supported the latest MSR text without amendments.
The Dec-15s settled up 5 cents at €7.68, off the day’s peak of €7.70, with moderate volume of more than 13 million units changing hands.
“I know it was largely expected, but there was a small amount of doubt looming over the market since any of the governments could have changed their mind,” one trader said, referring to the Council’s green lighting of the MSR.
“An eastern (EU) nation may have decided it didn’t win enough in the trilogue negotiations, while a western government may have thought it conceded too much.”
Talks between the European Commission, European Parliament and member states last week secured a deal to start the MSR in 2019 – earlier than initially proposed – and filling it with backloaded and unallocated EUAs in exchange for exempting allowances in an eastern European solidarity fund from the reserve for 2021-2025.
Poland, Hungary, Romania, Bulgaria, Croatia and Cyprus kept their line of objecting to the measure on Wednesday, according to France’s ambassador Alexis Duterte on Twitter, but this was not enough to block the qualified majority in favour.
Analysts had viewed today’s meeting as one of the remaining potential sticking points, so clearing that injected bullish sentiment into the market, the trader said.
Separately, a rising euro and slightly firmer German baseload power prices helped offset the impact of higher coal prices on German clean dark spreads. British natural gas prices were mostly higher.
FREE ALLOCATION
Meanwhile, member states made little progress in handing out the remaining free allocation of 2015 allowances to industries, according to an update on the European Commission website late Tuesday.
It showed that 730 million out of a total 791 million EUAs that can be distributed for free to industrial manufacturers for their 2015 emissions had been dished out, just 6 million more than the previous update a fortnight earlier.
Italy and the UK have the most remaining, the update showed.
The allocation rates are closely watched by market participants as they may impact prices if a large amount of allocations are carried out.
But the impact is likely to be minimal following last month’s passing of the 2014 compliance deadline, when some industrial firms look to borrow from the 2015 allocation to cover their emissions or to enter the market if they receive fewer EUAs than expected or delays in government allocations.
By Mike Szabo and Ben Garside – mike@carbon-pulse.com
