Federación de cajas de Ahorros Vasco-Navarras

The regulations imposed by the Kyoto Protocol and the EU Emission Trading Scheme (ETS) have brought about the birth of the carbon market. .

International concern for the "greenhouse effect" was evident in 1997 with the establishment of the Kyoto Protocol , which established objectives for reducing greenhouse-effect gases (GEG), and recommended mechanisms for reducing the costs of achieving these goals. As a result, the EU Emission Trading Scheme (ETS) came into operation on 1st January 2005.

Aware of the importance of this new scenario, the Basque-Navarre Savings Banks , in collaboration with specialists in the provision of services relating to emission trading and projects for reducing GEG emissions, have set up various initiatives which include this bulletin containing news and information about the organisations, companies and intermediaries operating in this market.

The price of European emission trading rights rose by 22% in the first semester in 2010.

The volume of transactions rose in the first two months of the year, only to later fall during March. Maximum market liquidity was reached in April, when more than 500 million tons were traded.

The long-term moving average of trading prices is expected to continue to rise in the months to come, although the summer recess could negatively affect the dynamics of price increases. Market liquidity could decrease in the next few months before recovering once again in the autumn.

Although carbon rights trading increased globally by 62% last year, the market value only rose by 3.2% due to the drop in transaction prices.

The failure of the Copenhagen summit sparked a new crisis in the carbon market. We will have to wait for future summits to see whether and how the doubts raised have been answered.

The Barcelona summit also heralded a change in international negotiations on climate change. There can be no doubt that binding commitments will be reached in Copenhagen next December. Whilst any delay will mean that the Bali agenda will not be met, there is still time for a new agreement to be achieved before the one reached in Kyoto ends in 2012.

Prices were particularly unpredictable in September. Having reached the all-time high of 15.45€/ton on 8th September, the price of trading rights then began to drop with prices falling by as much as 17%. In September, transactions exceeded 400 million tons. In October, there was a 4% inflection in the trading volume of emission rights.

EU emission trading continued to fall during August for the sixth consecutive month.

The exchange volume on the trading market reached 267.9 tons in August, which was 55% down on the maximum liquidity reached in February.

The current positive trend in prices could encourage agents to make surplus trading right available on the market. An upward revision in the average price of emissions is expected of around 2€/ton.

In the month May, the price of trading rights followed the rising trend which began in the month of April. The average price for May stood at 14.86 euro per ton of CO₂, much higher than the average for the rest of the year: 12.40 euro per ton. In the month of June, trading rights were devalued by an average of 1.40 euro per ton of CO₂.

Liquidity in the month of May was lower than the previous month: 567 million rights against 586 million rights in April. June was a month of transition and readjustment in terms of both the price of rights and volume of trading.

After several consecutive months of drops in the prices of trading rights, prices began to stabilize and recover in the month of March. The average price for March stood at 11.56 €/ton of CO₂ and the average price for April was 13.31 €/ton of CO₂.

The massive sale of rights reached its peak in February. Liquidity was slightly lower in March than it was in February. Around 440 million tons of CO₂ were marketed.

The price of rights had already begun to fall by the start of the year and with the exception of a couple of specific recoveries, this downward trend continued in the months of January and February. On 20th February, the price of trading rights reached an all-time low of 8.2 €/ton.

The first two months of the year saw a spectacular growth in spot market trade with a 127.5% growth in the volume of activity. In February, around 590 million European trading rights had been exchanged - the highest volume ever on the European market.

The price of European rights continued to fall as it has done since the second half of September, with the price falling from 26.05 euros (on 23rd September) to 14.44 euros (on 9th January). The economic-financial crisis and the fall in the oil price per barrel were responsible for this sharp drop in the price of European rights. In spite of the lower price of rights, however, agents remained extremely active and November was one of the most liquid months in the year.

The price of CERs followed the same path as European rights. Both markets are increasingly connected and the difference now (on 9th January) between assets exchanged on the European market and on the CDM market is only 1.99 euros.

The price of rights has continued to fall during the last two months. At the beginning of October, the price of rights started high. Over the last two months, the fall in petrol prices and the search for liquidity by market agents has lead to an excessive number of available emission rights and this has resulted in a subsequent drop in the price of rights.

There was 1% drop in CO₂ emissions in 2007 in the Basque Country in relation to the previous year.

The price of rights has risen and fallen in the last three months. The market was fairly lively in June and July but turnover fell considerably in August.

June began with a price of over 26 euros and reached a top price of 28.7 euros on the 30th. The price reached 29 euros on 1st July but dropped sharply since then to lose some of its value and to close on the 8th at a price of 26 euros. There was a slight recovery following this but once again ground was lost and finally the month closed with a price of 22 euros.

On 1st April, a surplus of rights was confirmed for the third consecutive year. While this announcement did not affect the price of 2007 rights, which remained at 0.01 euros throughout April, the verified 2007 emissions did affect the price of 2008 rights, with their subsequent 18.7% revaluation in recent months.

The increase in the last two months was due to two factors. Firstly, the rise in the 2007 emissions of regulated companies resulted in a feeling of shortage for the coming year. Secondly, the unstoppable increase in oil prices entailed a greater consumption of coal. The difference between the price of 2008 European rights and CERs resulted in a European proposal to limit future CER usage.

There was not much activity on the European market in February and March, with a reduction in trading in relation to previous months. It is possible that there will be more movement in April, once the regulated companies know their verified emissions and know whether they should buy rights or not to cover their last year’s emissions.

At the beginning of April, the 2007 verified emissions will be published, after which there may be movements of rights for the first period.

Expectations about carbon market growth and price evolution point towards there being greater increases than those forecast so far.

In 2007, a total of 2,700 million tons of CO2 were exchanged on the global carbon market. The financial value of these movements was higher than 40,000 million euros, i.e. 80% up on 2006.

In the second exchange period, which began in January 2008, there is expected to be a shortage of rights. According to analysts, the price of rights in this period could range between 21 euros and 35 euros.

The European Commission has finished assessing the 2008-2012 NAPs. The total number of allowances distributed in the EU in this period will be 2.04 billion annual allowances, i.e. 40.5 million fewer than the emissions verified for 2005.

The price of 2007 allowances stopped falling to stabilise at around 0.08-0.10 euros. At the close of this edition, the price stood at 0.09 euros.

For its part, the price of 2008 allowances continued to rise slowly. The price at the close of this edition was 22.80 euros.

The price of 2007 rights continued to fall, reaching once again their all-time lowest value. This minimum (of 0.07 euros) was reached after several weeks when the price remained at around 0.11 euros.

In July, the Department of the Environnment published and passed the proposal establishing the rights that each installation participating in the European emissions trading scheme will receive in 2008-2012. The data, although provisional, point towards significant reductions (22.1 million/year fewer than in the previous period) and seem to indicate that those most affected by these will be the energy sector plants.

The downward trend of the price of 2007 forwards which began in September continued during the months of May, June and the first few days of July. Once again, the price of carbon reached a new minimum on 21 June, but managed to recover slightly to close on 13 July at a price of 0.13 euros.

The European Commission has started to publish its decisions relating to the amendments presented by the Member States to the changes proposed in the national allocation plans. The future evolution of the price of the 2008 forwards will depend to a large extent on the European Commission’s continuing ability to convey a feeling of shortage in the second period.

Data relating to the verified emissions available to date (although still provisional) seems to indicate that there was also an excess of rights in 2006 on a European level.

The behaviour of Spain was different since data provided in this geographical area by the companies themselves points towards a deficit of around 14 million tons. This deficit, to which the Basque Country contributed with a shortage of 0.19 million rights, was largely supported by energy sector fuel and carbon installations.

All of this seems to indicate that there is likely to be a shortage of right in the market this year, and so the price of rights is unlikely to rise. It also seems unlikely that the price will continue to fall.

After analysing the 2008-2012 Spanish NAP, the European Commission has demanded that the total quota to be distributed be decreased by 0.42 million rights and that the use of CDM and JA project credits be limited to 20% on the amount of allocated rights.

The price of the 2007 forwards continued to drop as it has done since September and closed the month of February at 0.93 euros, after reaching a minimum price of 0.78 euros. The price recovered slightly over the first two weeks of March and closed on Friday 16^th at 1.25 euros. The drop in price has mainly been due to the lack of interest shown by electricity companies to purchase rights as a result of the mild temperatures and little need for rights.

After analysing the 2008-2012 NAP for the 12 member states, the European Commission has demanded that the total quota to be distributed be decreased by 73 million rights. So far, only the United Kingdom's NAP has been approved by the European Commission.

November has been the most liquid month for the emissions market since it was established in January 2005. Nevertheless, the price of rights continued the downward trend which began in September to reach a minimum of 8.10 euros.

In accordance with member countries' NAP proposals, the proposed amount of rights exceeded the verified emissions in the year 2005 by 46 million.

The price ranged between 14.70 euros and 17.50 euros between June and mid-September. From the second half of September, the price started to drop and closed at 12.95 euros, after reaching a minimum of 11.50 euros on 26th September.

The average daily volume exchanged in September was 2.6 million rights.

The escalation of prices in the month of July can be explained by (1) the conflict in the Middle East and (2) the high temperatures throughout Europe for this month. These factors had a very significant effect on energy demand and its price, which pushed the price of carbon up.

The price recovered at the end of May and remained at reasonable levels during the month of June and the first few weeks of July. The volume exchanged in June was clearly lower than that traded the previous month. In the first weeks of July, the trend of the previous month continued.

Despite the surplus of emission rights in the first year of operation, the price of the rights has remained relatively high. Although it is probable that the price will continue to remain high in the months to come, it is very possible that in the long term market fundamentals will cause a drop in price.

The volatility of the price of carbon remained high in May, a month when 90 million rights were exchanged on the OTC market and the different carbon platforms. The price drop was brought about by the announcement of the existence of a surplus of emission rights.

The price recovered at the end of May and remained at reasonable levels during the month of June and the first few weeks of July. The volume exchanged in June was clearly lower than that traded the previous month. In the first weeks of July, the trend of the previous month continued.

The European Climate Exchange (ECX) continues to be the most liquid platform for forwards/futures, whereas Powernext Carbon (PWX) will capture 60% of the spot contracts exchanged.

The price of the tonne of carbon dioxide fell from 31.00 euros to 12.30 euros in less than three weeks. Behind the price drop is the excess of allowances in the first year of operation of the European Union Emission Trading Scheme.
The market has been extremely volatile and this volatility is expected to continue. The future level of the price of allowances will be fixed once 2005 emissions data has been published.
Draft national allocation plans must be published by the end of June. It is very probable that this will stimulate allowance trading to be handed over in the coming period.

The carbon market has been very active in the first few months of 2006, a period when the volume of commercial exchange was high and there was a considerable increase in the number of companies buying and selling rights.

The month of January was dominated by a rising market, in which a total of 63 million rights were exchanged. The exchange of 2006 forwards started with a price of 23.40 euros and the month closed with a price of 26.50 after having reached 27 euros.

A year after its establishment, European Carbon Market shows signs of growth. Both 263 millions of tons and the evolution of asset price prove that. Furthermore, eighteen among twenty five registers are operating. Brokers found the way to profit into this new market.

EUA prices evolution showed very important differences along last months.

OTC market exchange volumes showed similar evolution to EUA prices since it was established on January 1st.