The price of pollutants in the EU rose as the price of carbon hit a record high on Friday, in what has been hailed as a ‘landmark’ moment for the EU’s efforts to cut emissions and tackle climate change .
The price of the EU Emissions Trading System (EU ETS) – where credits to release a tonne of carbon are traded – hit a record high above € 31 per tonne on Friday, topping the point last reached in 2006 shortly after the launch of the system. .
Traders and analysts said the cost of carbon allowances had risen amid expectations that the EU would set stricter emission reduction targets, pushing up the cost of carbon in order to phase out highly polluting fuels such as than coal and natural gas.
Mark Lewis, chief sustainability strategist at BNP Paribas Asset Management, said the new highs marked a “historic moment for the EU ETS” and predicted further price action.
“This is a decisive decade in the fight to prevent catastrophic and irreversible climate change,” said Lewis.
“The European market has just set a milestone for the next 10 years: the space left in the atmosphere for new concentrations of carbon dioxide is the ultimate scarce resource, and it must be assessed accordingly.”
Measures taken by the EU to tighten the supply of carbon allowances are expected to increase the price of carbon over time, creating what some traders have described as a one way bet for a sector.
Heavily polluting industries and power plants are allocated a certain number of allowances each year that they can sell if they manage to reduce their own emissions, or buy if they pollute more than expected.
The price hike this week came as EU leaders in Brussels negotiated a common goal of cutting emissions by 2030 “by at least 55 percent” from 1990 levels.
As part of the emissions target raised, the European Commission will propose in June a reform of the ETS in order to extend its scope to the maritime industry and gradually eliminate the free quotas granted to the aviation sector. over ten years ago.
Analysts said they see the price of carbon potentially rising to above € 50 per tonne or more, if the EU is to make alternative fuels such as hydrogen viable for natural gas competitors.
The source of electricity supply in Europe has already been cleaned up by the EU ETS rally since 2017, with prices rising from almost € 7 to € 30 per tonne following the introduction of a mechanism to help curb the supply of existing quotas.
The market had languished for nearly a decade after the financial crisis, as the global economic downturn naturally reduced emissions, leaving a large allowance surplus and falling prices.
But price increases over the past four years have made heavily polluting coal increasingly less competitive with natural gas, which releases about half as much carbon when burned. Renewable energies such as wind and solar have also made up a larger share of the total supply, as costs have fallen and countries have increased their capacity.
Additional reporting by Mehreen Khan in Brussels
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