EU carbon prices have broken the record for the first time by jumping more than € 50 a tonne, increasing the cost of pollution in the bloc more than double the pre-pandemic level.
The European Union’s Emissions Trading System (ETS), which is designed to reduce the cost of CO2 for some energy-polluting industries, has grown by more than 50 percent since the start of the year.
As in December last year, the price of carbon never traded above 30 tonnes, but as markets bet on markets, the availability of carbon allowances will have to be tightened in the coming years if the EU is to meet aggressive climate targets, among other things. a 55 percent reduction in emissions by 2030.
The rise has made carbon one of the hottest products in the world, even as the rise of the sector has sparked fears of inflation. While environmentalists have welcomed the rise in pollution for energy suppliers and the industry, there is a fear that it is faster than companies can easily adapt.
Last week, companies in the steel sector and other highly polluting industries, such as petrochemicals and cement, called on the EU to speed up plans to adjust the carbon limit for imports from countries outside the scheme, fearing they would be at a competitive disadvantage.
The European steel sector, for example, would suffer carbon costs of around € 2 billion this year at current price levels, even though member countries provide most of their carbon supplies for free.
According to the ETS of the block, companies are allocated a certain amount of allowances to cover at least part of their emissions. If they cut back on the amount they pollute, such as using renewable fuels or natural gas instead of coal, they are free to sell the surplus allowances for profit. But if they increase pollution they have to buy additional allowances to cover emissions, according to the so-called limit and trade model.
The rise in carbon prices has attracted the attention of hedge funds and other financial investors, who have been deepening their carbon trade, along with credit-trading utilities and other industries.
Some analysts in the sector have suggested that prices could reach 100 euros per tonne by the end of the decade, which they believe is necessary for alternative fuels such as “green” hydrogen to be competitive.