Low demand for emission allowances (EUAs) in the EU caused the price of carbon to fall to new lows during January.
The price of carbon, traded as EUAs in the EU’s emissions trading scheme (ETS) dropped below €5 per tonne on 21 January. The drop followed losses seen a few days earlier when an auction of 4 million EUAs in Germany was cancelled by the energy bourse EEX because the reserve (minimum acceptable)price was not reached. Prics were expected to rebound slightly as traders took advantage of the low EUA levels, according to analysts.

Marcus Ferdinand, senior market analyst at Thomson Reuters Point Carbon attributed the price drop to "a combination of record-low German power prices and an ongoing lack of clarity regarding the back-loading of allowances". He added: "EUA prices are caught in a bearish trend that reflects the general oversupply situation in the market."
The European Commission has proposed the temporary withdrawal of carbon permits from the market, known as back-loading, to help support prices, but it has to get the backing of member states before the plan can become law. Poland has opposed the proposal while Germany has failed to give it clear support.
"The cancellation of the German auction of 4 million allowances … caused market observers to wonder how far the carbon price could sink," commented Ferdinand.
EUAs and the ETS are one of the key mechanisms employed in the EU to reduce carbon emissions. An oversupply of allowances in the market has been caused by a combination of over-allocation and reduced energy demand during the economic recession.