This week’s outlook is neutral. No auction is scheduled for this week and UKAs look like they may be influenced wider markets in holding mode after last week’s dip. Relatively mild weather now should is expected to give way to colder forecast weather running from late January through to mid February should lend support as heating demand increases. The latest ICE Commitment of Traders data shows no major change in investment fund holdings week on week – there just doesn’t seem to be a large amount of interest, and the IEA’s latest forecast for electricity demand growth may be playing into that lack of interest. Tomorrow the UK government will announce what sort of action, if any, will be taken in response to the triggering of the cost containment reserve. The cost containment threshold for February jumps higher from the figure in the low 50s of pounds that has prompted triggering twice, to £75.76 and then £80.90. The government didn’t take action to calm high UKA prices for December, so may choose to not intervene again, only a month later. With little space in the market in terms of surplus UKAs, heading into the compliance period further gains could be possible.

UK ETS Outlook: neutral

  • European Electricity demand growth to be muted in next years compared to 2021/22: global electricity demand growth has contributed to the current energy crisis, which could cool European carbon markets for 2022 somewhat in spite of major questions around gas supplies and nuclear outages. See the IEA chart in the EU ETS report.
  • Gas price volatility unlikely to have a substantial effect on the UK ETS: the UK ETS is unlikely to respond in strongly bearish fashion to a return to fuel switching if prices were to drop that low, given the gas price increase didn’t mean very much additional coal was turned on in the first place. Only strong renewable generation adds slack to the market, in the absence of which, compliance buyers must buy from a limited pool of liquidity given the likely high rate of swapping EUA to UKA at auction.
Chart from
  • Cost containment triggered again: the UK government will decide whether to intervene and add more UKA supply on  Tuesday 18 January, after trading closes. For February, the threshold increases substantially.
Reference price threshold Reference months Triggered?
Dec-21 £52.88 Sep, Oct, Nov Yes
Jan-22 £56.58 Oct, Nov, Dec Yes
Feb-22 £75.76 Nov, Dec, Jan No
Mar-22 £80.90 Dec, Jan, Feb No
Apr-22 £87.99 Jan, Feb, Mar
  • Bearish headwinds from wider markets: wider markets look in holding mode, waiting for developments in monetary policy from the US Federal Reserve.
  • UKAs stand at a premium of 4.69 euros to EUAs at the time of writing.
  • Indicative price: £72.40

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