EU carbon price stabilises following UK auction

The spot price for EU emission allowances (EUAs) inched back up above €12.15 this afternoon after hitting a nine-month low of €12.12 ahead of the latest UK auction of emission permits earlier today.

The drop in prices was mirrored by the price of EUA futures for delivery in December 2010, which similarly fell to a low of €12.25 before recovering to €12.42 by mid-afternoon.

The fall in prices came ahead of the UK auction of 4,886,799 EUAs, which fetched a price of €12.15 a tonne in an auction that was nearly five times oversubscribed.

Jurgen Hansen, senior analyst at Point Carbon, said that the fall in prices ahead of the auction was expected.

"We've seen that the market is typically bearish ahead of the auction of new allowances, as traders sell before the auction in the hope they can buy them back at the auction," he explained, adding that prices were also being depressed by pessimism in the market, resulting from the failure of the Copenhagen Summit to deliver a more ambitious deal.

Experts predicted that the price of EUAs could yet slip further, as prices are being propped up by the cold weather across Northern Europe that has led to rising gas prices, which have in turn driven up the demand for emission allowances.

There are also concerns that prices could remain low through to April when the EU releases emissions data for 2009.

"The dark horses are the industrial players who are holding excess allowances," explained Hansen. "We could see industrial selling kick in, but they could also choose to hold on to them and roll them over into phase three [of the ETS]."

The nine-month low came as Reuters reported that a number of carbon trading desks are looking to diversify their operations as frustrations grow over the perceived failure at Copenhagen and the sluggish nature of the market in recent weeks.

The news agency reported that Paris-based COER2 Commodities will be trading in crude oil futures, natural gas, gold and base metals from mid-January, while Fortis Bank Netherlands also began to diversify into energy markets last month.

"I have put my best people on soft commodities and oil," Seb Walhain, the bank's head of environmental markets, told Reuters. "At the moment, I don't see there is a proper business to be had in carbon."

The depressed nature of the market is likely to continue for several months with a recovery dependent on the strength of the economic recovery and the prospects of a US cap-and-trade bill being passed.