At the end of 2018, the European market for carbon emissions saw some quite big price increases. Demand was high due to insecurity on the market ahead of the startup of the MSR reform, the EU’s latest change of the quota market, which was implemented starting January 1. Therefore, many players on the market chose to hedge ahead of New Year, and the quota price rose to above 25 EUR/t.
In January however, demand on the market has decreased. In March, all CO2-emitters covered by the EU ETS scheme must have bought quotas equivalent to their emissions from 2018. Traditionally, the purchase of these quotas has taken place during the last time before the deadline, but this year, it appears as if many players on the market have changed strategy.
The surprisingly low demand over the last weeks means, that the quota price at the beginning of February has dropped to the lowest level since New Year. Friday morning, the benchmark quota contract is traded at a price of 21.85 EUR/t, meaning that the level has fallen by around 15 % since New Year. This despite the fact that the market had expected the price to increase further.
Earlier this week, the think tank Sandbag estimated in an analysis, that the total emission level from the EU power sector had dropped by 5 % in 2018 compared to the year before. This was first and foremost due to a change in the power mix towards renewables, but also because of improved hydropower availability during the year.