The price of allowances in Europe’s carbon market surged to a 14-year high on Monday, as the promise of ‘green recovery’ climate policies across the EU helped prices breach the €30 per tonne-mark for the first time since 2006.Prices on the EU’s Emissions Trading Scheme (ETS) have experienced a steady increase over the past two years, hitting an 11-year high of €28 per tonne last summer, following reforms aimed at reducing the number of free pollution permits in the market.
The rising cost of pollution has had a major knock-on impact on carbon intensive firms in Europe, eroding the economic case for coal fired power plants in particular. Going in to the coronavirus crisis, the price of EU Allowances (EUAs) stood at just under €24 per tonne, but as lockdown measures kicked in across Europe in March to fight the COVID-19 outbreak, prices fell sharply as plummeting energy use from factories and businesses led to lower emissions and reduced demand for carbon allowances.
Now, however, with the EU Commission having set out plans for a €750bn economic recovery package with a major focus on furthering its European Green Deal ambitions to become the world’s first net zero continent by 2050, many analysts believe ETS traders are anticipating tighter climate policies and pushing up demand for EUAs. Investors have sought to snap up CO2 credits in recent weeks and months in the belief that future prices could go even higher, sending the price soaring once again to over €30 a tonne yesterday. During Monday’s afternoon’s trading, prices even came within 20 cents of the all-time high set in April 2006 of €31 per tonne, according to the Financial Times.
Critics of the ETS have warned that higher prices could encourage some industries to migrate to regions without catrbon pricing regimes in place. However, official studies from the EU have revealed negligible evidence of so-called ‘carbon leakage’, while a system of free allowances is designed to address competitiveness concerns for those industries at risk of being undercut by overseas competitors.
Source: Business Green
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