Rising natural gas prices drive up carbon emissions
Market gets support from new EU emissions target by 2030
By the end of the day, prices had dropped sharply to € 48.40 per tonne.
Carbon prices in the EU climbed above € 50 per tonne for the first time ever on May 4 during a volatile session, when prices plummeted later in the day.
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EU futures contracts for December 2021 delivery on ICE Futures Europe rose to € 50.05 per tonne in early deals, then sharply reversed rates and plummeted to end-of-day at € 48.40 per tonne.
“The € 50 / t threshold was exceeded after the 2020 compliance deadline expired. [on April 30]”said Jeff Berman, manager of emissions and clean energy analysis at S&P Global Platts Analytics.
With this in mind, there is a real possibility that the market could ignore other upcoming bearish factors, including the arrival of free placements in 2021 and the start of ETS auctions in the UK, which could force UK companies to abandon EUA hedges, Berman said. May 4th. …
An annual free allocation of quotas to industrial sectors across Europe is expected by June, and UK carbon auctions and futures trading will begin on 19 May.
European natural gas prices rose sharply in April, pushing up the estimated carbon-to-gas conversion price, which is an optimistic sign for a future hedge of EUA demand among power producers.
“It is interesting to note that the EUA is currently trading below the fuel switching range calculated from the third quarter of 2021 and the fourth quarter of 2021 onward,” said analyst Lüder Schumacher of Societe Generale.
“TTF [Dutch] Gas has just started to decline due to seasonal low temperatures across Europe, ”he said in an email commentary on May 4.
Other sources agreed that a combination of factors led to higher carbon prices.
Market research firm Refinitiv said the € 50 / t milestone means carbon prices have risen 50% since early 2021, making it one of the top performing products this year.
“Multiple factors have contributed to the increase in carbon emissions, but the EU’s decision to raise its 2030 emission reduction target to” at least 55% below 1990 levels (up from 40%), “Refinitiv said in a May 4 statement.
“There is also a supportive factor – the exceptionally cold winter and early spring in Europe, which are driving increased energy demand and emissions from the energy sector,” the report said.
“Carbon was also supported by the strengthening European gas market, which has also shown significant growth since the beginning of the year due to a tight supply and demand situation and the lowest storage level since 2018. The rise in carbon prices leads to the transition from coal to gas in the electric power industry, ”Refinitiv said.
The company said that due to its strong belief in the integrity of the EU ETS, financial investors are increasingly attracted to the market, further contributing to the upward movement.
ICE data shows that investment fund positions in EUA futures are at an all-time high, with non-compliant companies currently holding a quarter of long positions in the EU ETS, Refinitiv said.