Prices of European CO2 emission contracts (EMISS) plunged this week and are now trading over 30% below February record highs. Emission contracts were often seen as "free lunch" as regulatory tightening supply was believed to drive prices higher forever. However, with potential major disruptions in energy markets on the horizon, there is a fear that production in European countries will have to be reduced amid insufficient supply of gas, for example. This would lead to a lower demand for emission contracts as factories would not pollute as much. Amid potential energy crises in Europe some called for total suspension of the Emission Trading System to lower costs and support the economy and households.
Taking a look at the EMISS chart at the W1 interval, we can see that the price dove this week. However, sell-off slowed near important support marked with the 38.2% retracement of recent upward impulse as well as previous price reactions and the lower limit of the upward channel. Nevertheless, one should remember that EMISS is a very volatile market and corrections of around 50% occurred. Having said that, in case the aforementioned support zone at €66.00 is broken, downward move may deepen towards the next retracements at €56.20 and €46.35.
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Source: xStation5
