EU carbon permits climb above €50/tonne for first time

  • May 05, 2021
  • Irish Times

The price of benchmark European Union carbon permits climbed above €50 a tonne for the first time on Tuesday, bolstered by tougher EU climate policies and strong demand from investors, pushing the cost of emissions to record highs.

The contract for EU Allowances (EUAs) rose 1.3 per cent to €50.05 a tonne, its highest level since the EU’s Emissions Trading System was launched in 2005.

It has since fallen back and was trading at €49.46 a tonne by 8.15 am.

The benchmark December 2021 carbon contract has risen 14.7 per cent in April and 49.2 per cent since the start of the year, based on Refinitiv data.

“There’s a basket of bullish factors, that is really why we see prices up at these levels,” Refinitiv analyst Ingvild Sorhus told Reuters.

These include policy support from the EU’s new climate goal, plus increased permit demand from financial investors tempted into the market by soaring prices and a consensus among analysts that prices are likely to climb further in the coming years.

Also Sorhus said that low European natural gas storage levels offered less potential for coal-to-gas switching to temper demand for CO2 permits.

European gas storage levels are around 30 per cent full, compared with around 64 per cent at the same time last year, based on latest available data from Gas Infrastructure Europe.

Last month, the EU confirmed a new, legally binding target to cut net greenhouse gas emissions by at least 55 per cent by 2030, from 1990 levels.

That target is expected to lead to greater demand for CO2 permits and scarcity of permits. Brussels will this summer present a plan to reform the carbon market, to cut emissions faster over the next decade.

For industry, that will likely mean a reduction in the free carbon permits the EU currently gives companies to protect them from competitors in countries without a carbon price.

To help European companies stay competitive as they face higher carbon costs, Brussels also plans to introduce a carbon border tariff on imports of polluting goods from abroad.