European carbon allowance prices plummeted last week, dropping to six-month lows. Analysts believe that prices rebounded once they hit key technical levels, reported KraneShares in the Climate Market Now blog. EUA price volatility likely reflects ongoing European Union (EU) economic challenges and bearish sentiment for now.
The EU continues to face economic challenges heading into the final quarter of the year. Both Germany and France, the two largest economics within the bloc, suffered significant declines in September in both manufacturing and services industries, reported CNBC.
Germany’s HCOB flash composite PMI (measures services and manufacturing) dropped to 47.2 in September from 48.4 the month previous. It’s the lowest reading in seven months, and well below the expected 48.2. Meanwhile France’s HCOB PMI plummeted from 53.1 in August to 47.4 in September, an eight-month low. Both readings fall in contraction territory.
S&P Global also reported that business in the eurozone as a whole declined in September. It dropped from 51 in August to 48.9 in September, the first decline in seven months.
“The upshot is that demand from utilities is widely reported to have been lower so far in 2024 than it was a year ago,” KraneShares wrote. “Data from the ENTSO-E grid regulator showed emissions in the first quarter of this year fell 17%.”
The EU Energy Transition Remains Underway
Though electricity demand in Europe remains sluggish, on the supply side the carbon transition is only gaining momentum. Eurelectric, a European electric industry federation, reported. that 74% of electricity in the EU was produced from renewable and low-carbon sources in the first half of 2024. They attribute the 6% gain from last year to significant renewable energy additions and nuclear power generation stabilization.
EUA prices fell to as low as €60.06, the lowest in six months, before rebounding in the following days. December EUA futures contracts currently trade at €65.28 as of 10/15/24 according to ICE Endex. Though bearish sentiment currently weighs on EUAs, the long-term prognosis remains strong. Indeed, EU compliance buyers were quick to buy EUAs at their reduced prices to hold onto for future use, KraneShares reported.
Investors looking to gain access to the market at reduced prices would do well to consider the KraneShares European Carbon Allowance Strategy ETF (KEUA ). KEUA offers targeted exposure to the EU carbon allowances market and is actively managed. The fund’s benchmark is the S&P Carbon Credit EUA Index.
The fund’s benchmark tracks the most-traded EUA futures contracts, the oldest and most liquid carbon allowances market. Currently, the market covers roughly 40% of all EU emissions, including 27 member states and Norway, Iceland, and Liechtenstein.
KEUA carries a management fee of 0.79%.
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