EU carbon prices reached a new record high of over €67 ($75) for a metric ton after the end of the COP26 conference in Glasgow, Scotland.
Prices peaked on Monday as traders bet on the result of the climate talks leading to stronger emissions markets, which is widely considered to be one of the main drivers of decarbonization.
The entity responsible for setting the price for industry and utilities for every metric ton of emitted CO2 in the European Union is known as the EU Emissions Trading System.
And this week, it gained 5.5%, reaching a price of €66.74 (~$75.87) a ton compared to the €55 (~$62.54) per ton just a month ago. Currently, the EU carbon price is double what it was at the beginning of the year.
And although the outcome of the COP26 summit was not as strong as many had been hoping for, it has still been quite clear as to the need for governments to raise carbon prices.
While this practice will help outphase emission-intensive fuels like coal on the one hand, on the other it will also help encourage industry to invest in greener technologies.
This caused a ‘post-COP euphoria’ of sorts, which brought about strong buying pressure on Monday morning that picked up further in the afternoon and resulted in prices reaching their new all-time high.
What is noteworthy about the EU carbon market is that it can directly be influenced by lawmakers, who, in turn, have the power to tighten supply over time and cause prices to rise.
But aside from that, investors have also been eager to rush into the market ever since the beginning of the pandemic, hoping that stimulus plans will accelerate decarbonization efforts and naturally cause CO2 prices to increase.
And indeed, a range of green initiatives, such as carbon capture and storage, green hydrogen and others will benefit from higher carbon price tags, as they will render conventional fossil fuels less competitive.