Demand destruction averted, or simply a matter of time?

European industrial emissions (and demand for EUAs) have been supported by state protection against high energy prices

Over the past few months demand for EU carbon allowances has been supported by utilities hedging against increased thermal coal generation, lower than expected output at France’s nuclear facilities, and the prospect of a long hot summer that has already curtailed Europe’s hydroelectric generation.

However, in the wake of Russia’s invasion of Ukraine and the surge in energy prices there was a real fear that demand destruction would lay waste to much of Europe’s industrial heartland. Recall, that industry accounts for around 620Mt CO2e (45%) of EU ETS covered carbon emissions, only 110Mt CO2e below the 730Mt CO2e (53%) emitted by the power and heat sector. A dramatic slowdown in industrial production could see demand for carbon allowances weaken, even in the face of bullish demand from utilities.

Almost three months after the invasion, how is Europe’s industry performing and what does the outlook for the rest of the year look like?