The Bull and Bear case for the EU carbon market in 2023

It’s early January and most of Europe appears to be spared the dangers of a harsh winter that would have devoured the fuel reserves the EU had been stockpiling since last summer in the wake of Russia’s cutoff of natural gas to most of Europe. Ahead of the flurry of market activity that is likely to pick up at the end of the first quarter, Luke Oliver, managing director and head of climate investments and chief strategy officer at KraneShares, Realistic look On what’s in store for the EU carbon market this year.

It’s a busy time of year for the European carbon allowances market as participants add up their emissions for the previous year and purchase any additional allowances necessary to cover actual emissions, driving up trading volume and activity in the first quarter. Last year’s emissions are expected to be lower in an unusual turn of events, largely due to a looming recession and skyrocketing costs of natural gas to industries. However, emissions for the electricity sector are expected to have been fueled by the increased use of coal as an energy source.

“This fuel switch trend may provide some support to the market as traders look ahead to 2023. There is likely to be little change in maturity demand for power plant operation in the short term since then, while gas prices have fallen sharply from their 2022 highs. Oliver explained climate market now Articles.

Oliver continued to outline the key factors likely to influence the EU deal this year in a largely bullish view. The high points include the possibility of demand picking up this year as new participants and traders enter the market and build their positions for 2023 and the decision at the end of last year for “suitable 55” reforms that will bring about changes and a tightening of the EU Emissions Trading System (EU ETS) in the coming years.

Image source: Ember

Another optimistic case for EUAs in 2023 includes last year’s emissions report: “A number of analysts have suggested that certified emissions data for 2022 will show an overall increase in verified emissions for 2022, compared to 1.307 billion tons in 2021,” Oliver writes. Last year’s EUA supply was 1.011 billion tons, which means a significant drop from the current oversupply.

The EU has agreed to bring an additional €20 billion (US$21.58 billion) of provisions into the market in the next three years, which could equal another 250 million EUAs of supply in a bearish outlook for the market in the shorter term.

“Added to this is the uncertain macroeconomic outlook, which will stall in the market and may discourage speculative traders from taking bullish positions,” Oliver explained.

However, the EUAs offered under the REPowerEU agenda are being withdrawn from the 2027-2030 auction, which is tantamount to tightening supply in the medium term.

“It is likely that the market will mark the time until the European Commission publishes more details on the timing and size of REPowerEU auctions, likely by the end of the first quarter after the legislation is signed by EU member states and becomes law,” Oliver wrote.

Investing in the EU carbon market

January lags behind lower gas and energy prices in Europe, but growing reliance on coal as the preferred source of energy is likely to drive demand for an EU deal. There is a strong opportunity right now for investors looking to get in the market before the number of upside possibilities start to flood in this year.

the Crunchers European Carbon Allowance Fund (KEUA) Offers targeted exposure to the EU carbon suits market and is being actively managed. The fund’s primary benchmark is the IHS Markit Carbon EUA Index, an index that tracks the most-traded EUA futures contract, and is the oldest and most liquid market for carbon allocations. The market currently provides coverage for nearly 40% of all emissions from the European Union, including the 27 member states, Norway, Iceland and Liechtenstein.

the Crunchers Global Carbon Corporation (NYSE: KRBN) It is the first of its kind to offer carbon credit trading investment and provides exposure to major carbon markets around the world. KRBN tracks the IHS Markit Global Carbon Index, which tracks the world’s most liquid carbon credit futures. This includes contracts from European Union allocations (EUA), California carbon allocations (CCA), Regional Greenhouse Gas Markets Initiative (RGGI), and United Kingdom allocations (UKA).

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