Issue CXXXI

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Carbon Newsletter
DBLM Solutions
11 Sep 2014


The EUA Dec14 contract is currently at 6.08.
The drop off in carbon prices this week is attributed
to lower power prices in Germany and France, a
weaker euro and a massive drawdown on open
interest. Open Interest fell by 17.8 million tonnes
on Monday. The largest single day drop since
2010. The drop was linked to hedgers covering the
Dec 14-15 spread. Analysts agree that the overall
change was likely neutral. The carbon price looks
bearish for the remainder of the week with the
market looking to any progress with the proposed
reform of a market reserve for future direction.
Weekly
Recap
ICE
EUA
Spot
ICE CER
Spot
ICE
EUA
Dec14
ICE CER
Dec14
04/09/2014 6.12 0.16 6.15 0.16
05/09/2014 6.12 0.15 6.30 0.15
08/09/2014 6.25 0.15 6.29 0.15
09/09/2014 6.15 0.16 6.14 0.16
10/09/2014 6.08 0.15 6.11 0.15
Volumes lots 5,355 0 95,125 652
Week %

-0.65% -6.25% -0.65% -6.25%
The EUA/CER spread narrowed this week to
5.93, at close of business last night versus the
6.12 spread we witnessed last week and 6.19 the
week before. This weeks spread is on par with the
highest spread over the last two years.

Auctions
EEX held auctions last Thursday, Friday, Monday
& Tuesday Auction prices were 6.25, 6.04,
6.25, & 6.23 respectively. The cover ratios for
the above auctions were 4.13, 3.30, 5.04 & 6.55
respectively. The next aviation auction will take
place on the 17 Sep. on ice where 2,707,500
EUAAs will be auctioned.
Market Stability Reserve(MSR)
It is widely believed, that MSR talks will start in
earnest at the next European Parliamentary meet.
Germany is understood to back plans to implement
the MSR by 2017 rather than delay the reform to
2021. The EU have proposed a take out volume of
12% for the MSR. However there is still many
unknowns, as the 2030 and 2040 targets are not yet
set in stone. The reserve, in essence is aimed at
Utility hedgers. the power sector relies on
conservative hedging strategies: sales and
purchases up to three years in advance (almost total
annual production is sold in futures markets) The
hedging creates a demand for physical allowances
(no cross-commodity hedging) even in a surplus
situation (long market) scarcity prices will be
generated. Some believe, that the MSR proposal is
a round about way of reducing the cap, which
would be easier but politically fraught. Will
Backloaded allowances be incorporated into MSR?
How will it effect Carbon Prices? Remember
Backloading represents 900 million allowances,
MSR is closer to the 200 million mark.