APAC Carbon Market Largely Stable Despite Mideast Tensions Driving EUAs
Carbon prices across the Asia Pacific have been largely stable this week so far, even as geopolitical tensions in the Middle East have triggered volatility in Europe’s carbon market, highlighting the different fundamentals driving emission trading systems in the two regions.
European Union Allowance or EUA prices rose by about 4% between Monday and Tuesday, following a 36% surge in Title Transfer Facility or TTF natural gas prices, which serves as Europe’s benchmark price for gas. This followed geopolitical tensions: after the first attacks, Qatar—accounting for about 10% of the EU’s natural gas imports—halted production, while shipping through the Strait of Hormuz, which handles 20% of global LNG supply, came to a standstill, boosting natural gas prices.
The front-month Dutch Natural Gas TTF futures contract on the Intercontinental Exchange rallied from altered economics of electricity generation via a fuel-switching mechanism, by making coal-fired power more competitive relative to gas. As coal plants emit significantly more carbon dioxide than gas usage, utilities must purchase more EUAs to offset emissions when coal use increases, pushing EUA prices higher. The assessment peaked at 54.29 euros ($63.00) per megawatt hour on Tuesday, up 69.87% from Friday. OPIS last assessed spot EUA at 70.09 euros per metric ton, up 2.5% week to date.
In contrast, the same geopolitical shocks have had relatively limited impact on Asia-Pacific carbon markets, such as South Korea’s Emissions Trading Scheme, and Australia’s Safeguard Mechanism.
“In Europe, carbon reacts quickly when gas prices move because utilities switch between coal and gas depending on costs,” an Asia-based trader said. “In Asia, that fuel-switching dynamic is much less pronounced.”
In South Korea, electricity generation dispatch is more centrally managed and largely predetermined, leaving utilities with little flexibility to shift between fuels in response to short-term market conditions. As a result, demand for Korean Allowance Units or KAU tends to track compliance obligations and regulatory timelines rather than energy market volatility.
OPIS last assessed spot KAU25 at KRW 13,425/mt ($9.30/mt) on Wednesday, down 1.65% week-to-date.
“[The recent tensions] will affect gas prices later and we will see how it goes with the coal/ gas dispatch in the months later this year. But for the near term there is no impact at all,” a South Korea-based market source said.
On the other hand, Australia’s carbon market is shaped by a Safeguard Mechanism, where emissions limits apply primarily to large industrial facilities such as mining operations, waste and domestic aviation based on declining baseline output-based benchmarking.
Facilities exceeding their emissions baselines must purchase Australian Carbon Credit Units or Safeguard Mechanism credits to offset excess emissions, tying demand for credits more closely to industrial activity rather than to electricity generation.
Moreover, Australia’s abundance of natural gas and its position as a net exporter further buffer its domestic market from global gas price volatility.
“Australia is moved by Safeguard facilities, not just power generation,” an Australia-based market source said. “So even if global fuel prices shift because of geopolitical tensions, the effect on carbon demand here is more limited, plus they have plenty of domestic gas.”
OPIS last assessed ACCU Generic, Generic (No AD) and SMC stable week to date at A$36.60/mt ($26/mt), A$36.50/mt and A$36.50/mt, respectively.
—Reporting by Sang Ah Lee, slee@opisnet.com; Editing by Mei-Hwen Wong, mwong@opisnet.com