European carbon prices for Dec 23 contracts dropped briefly on Tuesday morning to €75,21, the lowest level since 23 November 2022. The decline is even more impressive when compared to levels reached less than a month ago when EUAs traded as high as €86,60. 

The market is faced with a wide array of challenges which are pushing demand downwards and thus prices as well. Last week, analysts revised their expectations for industrial emissions, saying they would drop by 7% from 2022 levels, higher than previously expected earlier this year.

Data released this morning proved that the analysts were correct. German industrial production dropped in September for the fifth consecutive month. In total, industrial production in Europe’s biggest economy was down by 3,7% so far this year.

“It all looks as if German industrial production will continue moving sideways rather than gaining momentum anytime soon,” stated ING in a note this morning, referring to the disappointing data release.

Furthermore, “EUA buying interests are likely to be dented due to the change in compliance deadline starting from 2024,” according to Luyue Tan, Carbon Analyst at Refinitiv.

Next year, the compliance deadline will change from the current date of 30 April to 30 September. The new calendar is impacting the trading behavior of operators which now have more time in their hand to complu with the deadline, potentially reducing their buying interest for the remainder of 2023.

The overall bearish picture for energy related markets is another reason for the recent decline in carbon prices. The weather forecast predicts temperatures above normal for the time of the year while gas storage in Europe, as of 5 November, were 99,63% full, compared to just 75,94% exactly two years ago.