The European carbon price are surging and have reached a record high of 104 euros/tonne ($110). The price of EU Allowances (EUA) has seen a ~40% jump in the last four months as expectations for an economic recovery in the block have begun to materialize.
EU Allowances (EUA) are the main financial instrument through which the EU’s Emissions Trading System (ETS) enacts a cost for companies that emit greenhouse gases and incentivizes them to reduce emissions.
The trigger for this recent jump in prices are not straightforward and is actually based on weather forecasts. Meteorologists expect lower temperatures in the coming weeks, combined with reduced wind speeds.
This will mean that more fossil fuel energy plants will likely be fired up to provide heat and energy across the continent. Combined with the lower wind speed – which will reduce the output of wind power farms – this means that plants with high emissions will have to buy EUAs and outbid each other to buy enough permits.
This has led to a flurry of activity and a 9% move in the space of three days.
If the EU carbon price remain at these levels, or even go higher, increased investments in carbon capture and green hydrogen production are expected to speed up, as industrial emitters look for ways to reduce their operational costs.
There are however critics, saying the system has actually removed part or even the entirety of emitter’s will to reduce their emissions. As it stands the EU provides 43% of emissions allowances for free to the hard-to-abate sector with the remaining 57% auctioned through the ETS.