Testing long term support

The EU carbon price needs a cold winter and renewed political support to stop prices falling below a critical level

There is an inevitable tension between the short and long term fundamentals in any market. The EU carbon market is no different.

Look out into the future and you will see the emissions cap declining at a steady rate, year after year until at some point in the late 2030’s when the cap will reach zero. The Market Stability Reserve (MSR) will continue to cut into the available balance of emission allowances that can be used to meet compliance. Meanwhile, decarbonising heavy industrial processes such as cement manufacture will be a lot more difficult than switching from thermal coal to natural gas and scaling up renewable generation capacity.

Yet, right now those bullish long term factors are taking a back seat to more pressing short term considerations.

Lets dive in.