Volumes in the European carbon market jumped last month, boosted by speculation ahead of a key European Parliament vote on supply-curbing measures and the widening spread between key carbon commodity prices.
European emissions market volumes typically rise in February, ahead of the 31 March deadline for participants in the EU Emissions Trading System (ETS) to submit verified emissions data for the preceding year, and the end April deadline to surrender the equivalent emissions units.
However, market participants said that this year the compliance deadline was not the main driver of activity in February, and instead pointed to speculative buying ahead of the 28 February vote on removing EU allowances (EUAs) from Phase III (2013-20) of the EU ETS as well as a widening spread between prices of EUAs and certified emission reductions (CERs), the carbon credits generated by Clean Development Mechanism projects.
The London Energy Brokers’ Association reported a 47% increase in emissions volumes for February compared with the same period last year, with 266.9 million units traded. The organisation said daily volumes averaged 12.7 million last month.
“It was mainly driven by speculation about the set-aside,” said Heiko Siemann, vice-president of commodity origination at UniCredit in Munich. “There was a lot of speculative trading ahead of the vote.”
At the start of February, EUA prices rose faster than CERs, “meaning the spread broadened further, making a swap of EUAs into CERs ever more attractive”, said Bad Vilbel, Germany-based carbon asset manager and trader First Climate.Siemann said that volumes were also boosted by increased swap activity, as participants took advantage of a widening EUA-CER spread: the spread on the December 2012 contracts was around €4.40-4.50 in the early part of February, before contracting to €4 later in the month. Emitters can sell EUAs – many of which have been freely allocated by governments – and buy cheaper CERs, using the latter for compliance and pocketing the difference in price.
ICE Futures Europe, the dominant exchange for emissions contracts, saw 487 million allowances trade on its EUA futures contracts in February – both on-screen and cleared – up from 465 million in January. By comparison, the London-based platform handled 313 million EUAs in February last year.
Its CER futures volumes were up around 40%, from 94 million in January to 132 million in February, while volumes on its emission reduction unit futures listings almost doubled, to 5.4 million from 2.9 million.
Paris-based spot exchange BlueNext reported a 77% increase in its average daily volume in February compared with January. Across all its products, the exchange said it handled around 354,000 tonnes per day. Its busiest day, 14 February, saw 1.129 million units change hands, said BlueNext.
CME Nymex-owned platform Green Exchange (GreenX) reported a slight increase in volumes month-on-month, up by 16% to 36.5 million emissions units from 31.5 million in January. Year-on-year, volumes were up 22%, GreenX said.