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Carbon Prices Set To Fall As Europe Speeds Up Energy Transition

Hedge fund manager Per Lekander, who has been historically bullish on carbon prices, is betting that carbon credit prices will drop as Europe accelerates the energy transition.

“I see coal and gas prices falling, and I think they are going to go way lower in the longer term. And the emissions market is going to collapse,” Lekander told the Financial Times in an interview published on Tuesday.

Lekander was a carbon credit market bull for years and cashed in on the price rally in 2018.

Now the longer-term prospects of the carbon credits market are not so rosy amid a faster than previously thought shift away from fossil fuels and into renewables.

Earlier this year, the European Union member states and the European Parliament reached a political agreement to raise the targeted share of renewable energy in the EU’s energy consumption to 42.5% by 2030, up from a current target of 32%. The provisional political agreement – part of the EU’s efforts to ditch Russian energy as soon as possible and become a net-zero bloc by 2050 – will have to be endorsed by both the EU Council and the European Parliament to become law.    

The European Union’s Emissions Trading System [EU ETS] is a cornerstone of the EU’s policy to fight climate change and a key tool for reducing greenhouse gas emissions cost-effectively. The EU is the world's first major carbon market and remains the biggest one.

As Europe looks to lower emissions, the carbon credit prices are set for a decline, according to Lekander, who is managing partner at the investing group Clean Energy Transition.

Earlier this year, the carbon prices in the EU ETS hit a record $112 (100 euros) per ton, before falling to around $95 (85 euros) a ton currently.

The current carbon price is a massive 430% higher compared to five years ago, per FT’s estimates.

Lekander considers to close out his short position if carbon prices dropped to $67.50 (60 euros) per ton, he told FT.

By Tsvetana Paraskova for Oilprice.com

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