benlaidler @benlaidler: "𝐓𝐡𝐞 𝐜𝐚𝐫𝐛𝐨𝐧 𝐩𝐫𝐢𝐜𝐞 𝐦𝐚𝐤𝐞𝐬 𝐚..."

eToro

𝐓𝐡𝐞 𝐜𝐚𝐫𝐛𝐨𝐧 𝐩𝐫𝐢𝐜𝐞 𝐦𝐚𝐤𝐞𝐬 𝐚 𝐜𝐨𝐦𝐞𝐛𝐚𝐜𝐤 𝐂𝐀𝐑𝐁𝐎𝐍: The EU’s carbon price, the world’s largest system, has rallied 40% from its recent low, one of the strongest moves across commodities. As the ‘perfect storm’ of weak credit demand and higher supply abated and technical short positions eased. Europe’s industrial recession has bottomed, and natural gas prices risen. The supply overhang may be curbed if EU’s June 1st surplus indicator triggers an adjustment. The EUR74/t price is 30% below the high and held back by the still sluggish economy and end of the winter heating season. But may be a ‘free option’ to an ECB rate-cut driven GDP recovery and long-term regulatory market squeeze. 𝐃𝐑𝐈𝐕𝐄𝐑𝐒: Possible supply/demand catalysts are a triggering of EU’s Market Stability Reserve (MSR) and higher natural gas prices. 1) Supply soared with the front-loading of REPowerEU allowance sales and new Shipping sector supply. But the June 1 announcement of the Total Number of Allowances in Circulation (TNAC) may trigger a withdrawal via the Market Stability Reserve (MSR), established in 2019 to balance supply and demand. 2) Higher natgas prices and ETS credits have a high correlation. Incentivizing power producers to substitute for dirtier coal. Though an end of the ‘winter heating season’ and high storage levels may dampen natgas upside. 𝐋𝐎𝐍𝐆𝐄𝐑 𝐓𝐄𝐑𝐌: The ETS market is constructed to drive higher prices long term and incentive decarbonisation. Europe’s cap-and-trade system covers an estimated 40% of EU emissions and is expanding. The EU’s ‘fit for 55’ plan aims to cut emissions 55% versus 1990 levels by 2030. Including 1) cutting supply by raising the annual cap decrease to 2.2% and phasing out free allowances. 2) Boosting demand by adding shipping to the ETS last year, and buildings & transport in 2027. 3) Tighter permit caps for electricity and aviation. 4) A carbon border levy from 2026 that effectively globalizes the ETS with Europe the largest export market for 80 countries. $Carbon.FUT $KRBN $EuroNatGas.FUT etoro.com/news-and-analysis/market-insights/the-carbon-price-makes-a-comeback/

3 Mentioned

Carbon.FUT

KRBN

KraneShares Global Carbon ETF

EuroNatGas.FUT