European Union allowances (EUAs) have been steadily declining in value since the end of last year, when they peaked at around €8.40 per tonne.
Bloomberg New Energy Finance head of carbon and power Jonas Rooze told Utility Week there has been reduced demand from generators since the start of the year because of the mild winter: “They’ve probably had too many allowances on their books for this winter, which they’ve ended up not needing because they haven’t had to burn as much coal and gas.”
Rooze said the falling price of gas may also have led to lower demand for allowances, by encouraging the displacement of more carbon intensive coal generation.
There has been reduced demand from industrial users as well, he said, many of which were concerned with the global economic outlook.
Energy Aspects’ head of natural gas and carbon research Trevor Sikorski said speculation was an important factor.
“I think you’re probably seeing a lot of speculators short the market at the moment,” he said. “To the same extent people were going increasingly long last year, I think people are going increasingly short this year.”
Sikorski said it could be driving an overshoot, adding: “It’s very hard to say where this will fall and I think it’s very hard to say when it will bounce back as well. It seems that a recovery is an incredibly long way away.”