- François-Xavier Branthôme
The European benchmark price for carbon allowances on November 22, 2021, climbed above 71 euros (USD79.79) per tonne for the first time since the European Union's carbon market launched in 2005, although concerns about new lockdowns to try to curb rising COVID infections in Europe could limit further gains.
Colder weather and less wind power output this week left more room for fossil fuel generation, which could translate into higher demand for EUAs (EU allowances), Refinitiv analyst Ingvild Sorhus said in a morning comment. "That said, with Europe being the epicentre of the COVID-19 pandemic, worries over more lockdown measures and lower activity could weigh on markets and also carbon," she said, adding that the overall outlook remained bullish.
High gas prices make it more economical for power companies to burn coal, which emits twice the amount of carbon dioxide as gas power plants, requiring more carbon permits.
Monday (Nov. 22, 2021) marked the sixth consecutive day of European carbon allowances setting an all-time high. The carbon market has been boosted by agreement on global carbon trading at the U.N. Climate Summit and surging gas prices, which lifted it above key technical resistance levels, according to analysts.
Marcus Ferdinand, manager at Oslo-based consultancy Thema, told Reuters the report boosted confidence in the market because no immediate intervention from policy makers was expected. The market should remain structurally bullish, given profitable coal generation and interest from institutional investors, he said, but anticipated a short-term correction based on the likelihood of further COVID restrictions and the market appearing "overbought now from a technical perspective".
According to Reuters, the benchmark European carbon contract hit a fresh record high of 73.18 euros a tonne on November 24, 2021, after Germany's incoming coalition government said it would prevent carbon prices in its country from falling below 60 euros/tonne.
Germany, which is Europe's biggest emitter of carbon dioxide, said it would implement the measure if the European Union cannot agree on a minimum price in its Emissions Trading System.
Sources: reuters.com, euronews.com, nasdaq.com, ember-climate.org