Curb your enthusiasm

Welcome to Carbon Risk — helping investors navigate 'The Currency of Decarbonisation'! 🏭.

The European Commission is due to publish its EU ETS review tomorrow, Friday 17th July. Now seems like an ideal time to take the temperature of the EU carbon market. As I noted in early June, the EUA price has been closing in on the €82 level. It was here that the current bout of political uncertainty first kicked off back in early February.

Ever since then the price of carbon has been extremely sensitive to headlines, particularly those emanating from Bloomberg. The to-and-fro between rival EU political parties, member states, and corporations shouting for or against the EU ETS, is distilled down to a headline no more than 63 characters. The algos react first, and ask questions later.

As publication date has neared, articles purportedly from "people familiar with the matter...asking not to be named discussing non-public information" have proliferated. Bloomberg published two articles yesterday detailing some of the major reforms: EU Set to Slow Carbon Cuts to Give Industry Time to Adapt and EU to Give Companies 10 Years to Use New €30 Billion Carbon Fund.

One of the underlying (but perhaps not stated) intentions behind the reforms will be to curb market volatility, and provide a sustainable albeit implicit pathway towards a higher carbon price. That speaks towards the Commission not wanting to spook market participants, avoiding nasty surprises that could prompt a resurgence in volatility.

The devil may still be in the detail, but the messaging matters even more. It's here where well-timed leaks help to control the narrative.