Europe's carbon price tops 40 euros for first time.

Benchmark prices of European Union carbon permits rose above 40 euros per tonne for the first time on Thursday morning, exposing polluters to the highest prices in the carbon market’s 16-year history.

The Dec-21 EU carbon permit contract rose to an intraday high of 40.12 euros per tonne. Prices dipped later in the day to slightly below 39 euros per tonne.

The record price spike was likely driven by speculators including some hedge funds, with some likely support from utilities in the current cold weather, traders and analysts said.

Colder weather drives up demand for electricity and heating, stoking output at polluting power plants, and in turn lifting demand for emission permits.

“There’s a lot of new money coming into the market,” Said ClearBlue Markets carbon analyst Mourad Farahat, referring to speculators.

Long term, the biggest force boosting carbon prices is the 27-country EU’s plans for ambitious action to tackle climate change. Prices have been climbing since EU countries agreed last year to toughen the bloc’s 2030 target to curb greenhouse gas emissions.

Brussels is expected to cut the supply of permits in the carbon market in the coming years, to force polluters to become greener, faster.

“The overall climate ambition is the enabler of why different participants are now seeing carbon as an attractive asset,” said Refinitiv analyst Ingvild Sorhus.

The EU carbon market forces power plants and factories to buy carbon permits when they pollute. As the price of those permits increases, so does the incentive for companies to curb emissions and limit their carbon costs.

The EU’s executive Commission will unveil policy proposals in June to achieve its new climate target - including a reform of the carbon market to add emissions from shipping and possibly transport or buildings to the scheme.

(Fixes typographical error in headline)

11 February 2021

Reuters