Prices for carbon emissions (EMISS) dropped below €55 per tonne, and December contract is trading at an almost 6% discount. Prices dropped almost 50% over the past 12 months, with declines being driven by low energy prices, especially natural gas. Gas prices dropped to €24 per MWh and it is expected that they may drop to as low as €20-22 per MWh. Low gas prices may that other energy commodities, like for example coal, are trading under pressure due to a potential for low use. Low energy consumption in Europe is also supported by favorable weather conditions in Europe.
Emission contracts are meant to help accelerate energy transformation. Higher prices were supposed to encourage companies to lower carbon emissions. Drop in prices reflects weakness of the European energy and industrial sectors. We are observing a record short position of investment funds on emission prices.
There is high correlation between natural gas prices and carbon emission prices in recent months. Source: Bloomberg Finance LP
NATGAS drops to the lowest level since August 2021. Source: xStation5
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