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November 2023 market the begining of a relatively extended period of price decrease in the EUA world. We started seeing dowside factors such as good gas supply and lowered industrial activity across Europe.
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Carbon markets are a big deal. They cover 20% of global emissions. They also have a significant impact on our climate, our economy, and our society.
Yet carbon allowances don’t often make it to the diner table conversation.
We designed a Learning Journey to answer all the questions you never asked about carbon markets. In simple terms and without background knowledge, discover the building blocks of our greatest tool to fight climate change.
Every section will offer several episodes. This is the second episode. It is suggested to go through them in the proposed order, as new topics are introduced progressively.
Go further and expand your knowledge through Homaio’s periodically published articles. You do not need to be an expert on the topic - this blog simply offers the opportunity to strengthen your understanding.
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In the first episode of Homaio’s interview series, AGC shared their path toward decarbonization in response to rising carbon costs.
A little more than a month ago, EUA prices were close to €82. Currently, they are around €74. The large fall within the past few weeks was due to external factors - energy markets and weather dynamics were to blame. As previously explained, gas prices and carbon prices are correlated and often move in the same direction.
Firstly, the stabilized gas supply played a crucial role. Increased supply brings prices down. In October, before the big fall, there was a surge in EUA prices. It was driven by worries of reduced supply because of the Israeli-Palestinian conflict. However, as the initial shock to the energy market calmed down, gas prices began to decline. On top of this, the end of concerns on supply from other regions (such as the resolution of the social disputes at the Australian LNG sites and the clarifications behind the leaks in the North Sea pipelines) further reduced market panic. Currently, Europe enjoys a robust gas supply as it heads into a warm winter - storages are now filled to 99%. This minimizes the chances of gas prices rising in the near future.
Secondly, there was less demand for energy and this contributed to the price drop. The warm global temperatures in late October made households need less energy as they did not need any heating. So, gas prices were lower because there was enough supply and not much demand.
The third contributing factor was the slow industrial activity. In Europe, the power generating sector was less active this year and needed less energy to operate - the CO2 emissions of those industrials were reduced by 20% over the past year. Recently, we got Industial Production data from France and Germany - it showed a more significant decline than expected. Less industrial activity reduces the demand for emission allowances (EUA), causing prices to drop further.
The stable gas supply last month met a low energy demand and was topped by a reduced industrial activity. In result, EUA prices saw a notable drop. We think that in the weeks to come, ahead of the year end, we can expect a rebound. Stay tuned!
We have unlocked European compliance carbon markets! Our clients are officially the first EUA holders. We have helped them take out thousands of carbon allowances from the overall European budget. They have invested in an asset with a price structurally built to increase and a real impact on emissions.
Alexis, our Head of Tech, has joined the team. An alumni of Centrale Supélec, he joined us after spending a few years at Qobra, where he led the Tech team. After a week, he has already been delivering fast alongside Adrien. We can’t wait to show you what they’ve been working on in our next edition.
