CO2 collapses to all-time low

Monday, Jan 21 2013 by

Is CO2 dead? This is something I have been warning for a few years now. The evidence is overwhelming. Flawed concept, massive oversupply of permits and politicians optimistic predictions. Great combination.

I wrote two previous posts here: "Why CO2 collapsed 20% in two days" and "Is CO2 dead? Why Durban will do nothing for it". Now UBS has published a quick update on CO2 this morning given the price has reached an all time low of €4.9/mT.

- 2013 carbon price closed Friday at just above €5, an all time low for the third consecutive day and carbon is down 25% YTD (see chart, courtesy UBS)

Despite the end of Free CO2 allocations for Western European Power Generators the market still seems to be massively oversupplied - UBS estimates the oversupply will last until 2025 (under the current EU ETS)

- With the current emissions cap (1.74% reduction pa) ETS will be long each year until 2025 and it will take until 2045 before the current 1.5bn tonnes surplus inventory has been eliminated.

- The elimination of free carbon allowances for most power generators has increased the volume supplied through primary auctions by over 4x. Hence the market reflects a better genuine supply/demand balance.

- However, despite this Friday’s German auction which had to be cancelled due to lack of demand.

Possible Quick fix in H2?

- Both the EU Commissioner and the Irish EU presidency acknowledged last week that the future for the proposal to withhold allowances to prop up the price is uncertain. A decision is likely in H2.

- UBS believes that EU Governments won’t support a measure which increases power price inflation and utility profits.

- We also believe that Eastern European countries that have CO2 intensive economies are unlikely to be in favour of any type of measures to tighten the CO2 market.

In summary, governments will do again what they do best: mess up and try to intervene.

Negative for power prices

- Remember that CO2 is a key driver of Continental European power prices. German power prices are set by coal generation (at the top of the merit order) which is high in CO2 emmissions. Thus Coal generation spreads benefit from lower CO2 vs. Gas and other fixed cost generation (Renewables and Nuclear) this depresses wholesale baseload power prices. No wonder German power prices are also at…

Unlock this article instantly by logging into your account

Don’t have an account? Register for free and we’ll get out your way


Daniel Lacalle's views expressed in this blog are personal and should not be taken as buy or sell recommendations.

Do you like this Post?
3 thumbs up
0 thumbs down
Share this post with friends

What's your view on this article? Log In to Comment Now

You can track all @StockoChat comments via Twitter

About Dlacalle


Fund manager in Oil,Gas and utilities. I was voted Number 1 Pan-European Buyside Individual in Oil & Gas in Thomson Reuters' Extel Survey 2011, the leading survey among companies and financial institutions. More than 21 years of experience in the oil, gas and utilities fields from corporate to investment banking, research and fund management.  more »

Stock Picking Tutorial Centre

Related Content

Let’s get you setup so you get the most out of our service
Done, Let's add some stocks
Brilliant - You've created a folio! Now let's add some stocks to it.

  • Apple (AAPL)

  • Shell (RDSA)

  • Twitter (TWTR)

  • Volkswagon AG (VOK)

  • McDonalds (MCD)

  • Vodafone (VOD)

  • Barratt Homes (BDEV)

  • Microsoft (MSFT)

  • Tesco (TSCO)
Save and show me my analysis