Carbon emissions close to record price ahead of EU Summit

The price of European Union carbon emissions hit 30 euros a metric ton for the second time this week as traders prepare for stricter measures from the bloc to address climate change.

Breaching the 30-euro mark is seen as a key trigger that could usher in a new era for the pollution market, as Europe looks to speed up its decarbonization plans and reach net zero by 2050. Next week the EU leaders will gather for a summit to potentially agree an emissions plan that could push carbon through a 14 year high.

Carbon has hit this price range twice before this year, in July and September, before falling back down. Each time the surge has been driven by market expectations about the EU’s climate plans.

EU leaders are expected to clash over whether to cut emissions by at least 55% by 2030, up from a current goal of 40%. A decision next week could push carbon prices beyond the record high of 31 euros a ton set in April 2006.

“The belief in the market is that the political ambition or regulatory ambition is going to be raised,” said Marcus Ferdinand, head of European carbon and power analytics at ICIS. “The market is really in high expectation mode for a combined effort to hammer out a 2030 agreement.”

Breaking that record is imminent, especially as the supply of permits is set to be unusually low this winter after the European Commission decided to delay the start of 2021 auctions until at least late January, according to Tom Lord, head of trading and risk management at Redshaw Advisors Ltd.

“We think it is coming,” he said. “With this auction shutdown we feel that we could quite easily get over 31 euros in the coming weeks with no auction supply.”

Ferdinand, the ICIS analyst, said he expects prices to continue higher and end next year at 32.50 euros a ton then go to as much as 50 euros by 2023.

The persistent upward shift of carbon prices is helping drive out coal from Europe’s power grid. Even some of the newest and most efficient plants bid in a recent German auction to get paid to close down as operators see the rising carbon price cutting into potential profits.