Carbon prices slip on weak economic outlook

The flurry of weak economic data released yesterday affected the EU carbon market this morning as the price of EU Allowance (EUA) futures for December delivery slipped towards €14.35 (£11.79) a tonne.

EUA futures on the European Climate Exchange (ECX) were €14.36 in early morning trading, well below the five-day average of €14.40, and are expected to slip further.

Rodney Boyd, carbon market research analyst at IdeaCarbon, said the bearish sentiment was being driven by a combination of the weak economic outlook and the euro's recent poor performance.

"The euro has lost almost three per cent in two days, which is not good for a euro-traded product," he explained. "The biggest driver is the demand for EUAs from power firms and industry, so if the recovery is slower than expected, that will impact on carbon demand."

He added that the weak performance was exacerbated by low trading volumes, brought about by the fact many traders are on holiday.

Markets around the world took a hit yesterday as the Bank of England cut its growth forecasts, warning that the UK faces a "choppy recovery" and the US Central Bank similarly released a downbeat outlook.

There was also bad news for the US carbon market after Reuters reported that market operator Intercontinental Exchange (ICE) has launched a round of redundancies at the Chicago Climate Exchange (CCX) after completing its recent acquisition of the exchange.

Citing industry sources, Reuters said that about 25 people, or about half of CCX's headcount, had been laid off or were in line for redundancy.

"ICE just came in one day and started hacking away... We were told the company was restructuring," said an anonymous source.

ICE acquired CCX in April when it shelled out £395m to acquire its London-based operator Climate Exchange plc.

Climate Exchange, which also operates the ECX in Europe, had hoped that the CCX would become the main exchange for the national US carbon market that was proposed as part of the now defunct US climate bill.

The CCX is continuing to trade US carbon credits for a number of voluntary regional cap-and-trade schemes, but the market has been hit hard by the failure of the senate climate bill and credits have crashed to about 10 cents a tonne, down from a 2008 high of more than $7 (£4.49).

ICE provided no comment on the reported lay-offs, but the company has signalled that it is looking to develop a new strategy for the CCX.