Mastering the Commodities Markets

PRICING AND PRICE DISCOVERY – SUPPLY AND DEMAND

For the purpose of supply and demand analysis, we will focus on the EU ETS market. Like most commodities, the price of an emissions allowance or offset depends on a number of macroeconomic and microeconomic drivers.

Supply

The supply side in an allowance market is relatively straightforward. Since the cap is defined and fixed at the onset of a programme, supply is essentially set in stone (that is, of course, unless the government changes its mind and ‘tweaks’ the programme to achieve a greater or lesser target).

Allowances are created and distributed by the central regulating authority, the European Commission, according to member state national allocation plans (NAPs). In Phase III of the EU ...