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Record EU Carbon Prices Could Rally Further

EU climate rules and the use of more coal to replace natural gas at sky-high prices in power generation have resulted in a massive rally in the EU carbon price, which just hit an all-time high, and could rally even higher, according to analysts.

The European Union (EU) has had the so-called EU Emissions Trading System (EU ETS) in place since 2005, the world’s first major carbon market and the biggest one today. Under the carbon price trading system, big polluters such as industries, airlines, and power firms pay for each ton of carbon dioxide they emit.

According to the EU, the system “has pro­­­­­­ven to be an effective tool in driving emissions reductions cost-effectively. Installations covered by the ETS reduced emissions by about 35% between 2005 and 2019.”

This year, the rebound in economies and record natural gas prices incentivizing the use of more coal—a more polluting fuel for power generation, and the continued push for greener energy solutions from the EU have sent EU carbon prices to a record rally. This rally may not be over.

The benchmark EU carbon price hit an all-time high of $101 (89.37 euro) per ton on Wednesday, and analysts tell Reuters that the threshold of $113 (100 euro) per ton of CO2 could be reached before Christmas.

This year alone, the EU carbon price had already tripled as of last Friday, according to Bloomberg estimates.

After exceeding 80 euro per ton of CO2, the price could be headed to 100 euro per ton very soon, analysts tell Reuters, noting that high natural gas prices and an options expiry on the contract next week are boosting the benchmark EU carbon price.

“I think it’s possible prices could head to 100 euros/tonne to get all of the open interest on call options on that strike into the money,” Trevor Sikorski, an analyst at Energy Aspects, told Reuters via email.

By Tsvetana Paraskova for Oilprice.com

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