Weekly Posts

What’s behind EUAs popping higher today?

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EUAs closed up +9% after a prolonged period of sideways trading. We’ve talked a lot about the resistance/support level at €80 and we have now moved clear of it. However, let’s consider what’s going on.

There are a few things happening. First, we’ve been range-bound with many watching for the market to digest recent volatility for a directional view. We also have the upcoming compliance deadline on April 30th, which has always had the potential to see a short squeeze, pushing prices up sharply as compliance entities scramble to cover their obligations. However, the distribution of free allowances intended for 2023 was expected to dampen this.

The other news today is a vote in Europe to support potentially limiting speculative participants. The vote was by the industry group (ITRE), which will be a consideration for the European Commission but is not a conclusive decision. Also of note, the same body supported the Fit for 55 tightening.

Given the scale of these markets and the way in which many participants access them, we tend to see more technical momentum on larger moves than asset classes such as equities. This is part of the reason we have historically seen higher volatility in carbon allowance markets. For investors, this may be a case to watch longer-term moves and focus less on single-day moves.