Why does the price of EUAs change?
Fundamentally, the price of EUAs is determined by the perceived cost of complying with the reduction required by the EU Emission Trading Scheme. During trading, the market participants’ views of the cost of achieving the reduction can change. If, for example, today’s price of carbon is £15 per tonne and a new technology is discovered that could reduce emissions in one of the industries covered by the scheme for £10 per tonne, the price of EUAs would fall as that industry invests in the new technology and sells its surplus EUAs in the market. The energy market is an important driver of the EUA price. When demand for energy is high, demand for EUAs to cover the generation rises too. Burning coal produces particularly large quantities of greenhouse gases, so the price of EUAs is sensitive to demand for coal.
