Carbon prices declined for a fifth straight day on Tuesday and slipped to their lowest level since October 2021 amid selling pressure, weak gas prices, and reduced buying interest in government auctions. The EUAs last traded at €56.43, down €0,46 on the prior settlement. 

Carbon prices have been declining since the beginning of the year, faster than many predicted. The EUAs have retreated from a high of €81,25 on 2 January to post an impressive 30% decline, thus overtaking gas by a large margin. “EUAs are the worst-performing regional energy commodity of the year to date,” observed a well-known carbon analyst quoted by Carbon Pulse.

On the gas markets, prices are “down more than 20% since the start of the year, with further losses expected after forecasts indicate temperatures are likely to be above seasonal norms across Europe throughout February,” Daniel Hynes, senior commodity strategist quoted by Reuters.

Auction volumes are also adding further pressure on carbon prices. Weekly supply totals 13,4 million allowances when auctions on behalf of Poland are scheduled compared to just 11,84 million allowances a year ago. With few exceptions, all sales this year had weak demand indicators with clearing prices around the secondary market while the bid coverage averaged just 1,69, well below last year’s average of 1,99.  

The carbon market has few to no reasons to significantly recover.  “Only a particularly cold turn in the weather that shook the market’s faith in healthy gas imports and inventories was likely to provide an incentive in the near term to drive a reversal, said a trader quoted by Montel News.

However, recent weather forecasts suggest there are now freezing temperatures on the horizon.“The temperature forecast for the next two weeks was significantly warmer and gas consumption should fall on all work days this week”, according to LSEG analyst Ulrich Weber quoted by Reuters.