European carbon prices firmed by 0.5% on Tuesday, climbing back above €8 as European coal prices dropped below $50, making it cheaper for some EU power plants to emit.

Front-year EU Allowances futures, trading on ICE Futures Europe, settled up 4 cents at €8.03 after trading in a very narrow 7-cent range.

The Dec-15 futures opened at Monday’s two-week low of €7.98 but quickly climbed above €8, where they spent most of the day except for a couple occasions where they briefly dipped to €7.99.

Analysts have noted that €7.95 represents the next technical support to the downside, and breaking below that could see prices fall to €7.75.

The lower Bollinger Band on the Dec-15s is currently hovering at €7.96, providing additional technical support.

Meanwhile, coal for delivery in Europe next calendar year dropped below $50/tonne due to crumbling demand from China, its biggest consumer.

Prices are down by 25.4% so far this year.

Tuesday’s dip in coal prices was offset by a weaker euro, and that combined with flat German baseload power prices kept the clean dark spreads level compared to yesterday.

A group of 25 EU member states earlier in the day sold 2.198 million spot EUAs for €7.98 each, in an auction that cleared at market and attracted bids worth a total 11.6 million units.

The bidding interest was the most in a government auction since June 23.

Three fewer bidders participated in Tuesday’s sale compared to Monday’s, which saw 22 firms take part – the most since April.

No CERs traded on ICE and the futures curve remained in backwardation, with the prompt contract settling at 51 cents and the Dec-20s at 46 cents.

By Mike Szabo – mike@carbon-pulse.com