od at around 20 euros before the coronavirus pandemic.
Analysts and traders believe this record-breaking rally still has plenty of room to run.
Lawson Steele, joint head of carbon and utilities research at Berenberg, told CNBC’s “Squawk Box Europe” that he has a year-end price target of 110 euros — roughly double current levels.
Electricity pylons are seen in front of the cooling towers of the coal-fired power station of German energy giant RWE in Weisweiler, western Germany, on January 26, 2021.
Electricity pylons are seen in front of the cooling towers of the coal-fired power station of German energy giant RWE in Weisweiler, western Germany, on January 26, 2021.
INA FASSBENDER | AFP | Getty Images
LONDON — The cost of polluting in Europe is experiencing a meteoric rise unlike any period since its inception in 2005, driven higher by the region’s ambitious climate policy and increased financial investment in the market.
The European Union is home to the world’s largest carbon trading program. Carbon dioxide emissions are capped for many businesses and surplus allowances can be bought and sold.
The EU’s benchmark carbon price closed at 56.34 euros ($68.53) per metric ton on Monday, near its highest level since the launch of the market. The December 2021 carbon contract surpassed 50 euros for the first time ever earlier this month, having stood at around 20 euros before the coronavirus pandemic.
Analysts and traders believe this record-breaking rally still has plenty of room to run.
A cornerstone of the bloc’s climate and energy policy, the Emissions Trading System is the EU’s main tool for reducing greenhouse gas emissions that cause climate change. The ETS is designed to put a cost on carbon dioxide for the region’s most highly polluting industries, from aviation to mining. It currently covers around 40% of the EU’s greenhouse gas emissions.
Europe’s trading scheme is expected to play a key role in the bloc’s efforts to reduce carbon emissions by 55% (when compared to 1990 levels) through to 2030 and reaching net-zero emissions by 2050. The target has been criticized by environmental campaigners for falling short on what is necessary to prevent a catastrophic climate breakdown.
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What is carbon trading?
An annual Carbon Market Survey by Refinitiv, published on May 11, found that the cost of polluting in Europe is increasingly influencing investment decisions. Its survey of 303 respondents — mostly traders or regulated emitters in the global carbon market — also found that the majority believe EU carbon prices will continue to rise in the coming months.
Prices for 2021 were expected to average around 40 euros, before rising to 80 euros by the end of the decade. Analysts at Refinitiv said they see EU carbon prices trading at 89 euros by 2030, although some forecasters predict a level “far beyond that.”
Carbon prices need to be ‘much higher’
Lawson Steele, joint head of carbon and utilities research at Berenberg, told CNBC’s “Squawk Box Europe” that he has a year-end price target of 110 euros — roughly double current levels.
“I know I’m going to be wrong. It’s not going to be 110 spot on but it could happen a little bit earlier, it could happen a little bit later. It could be a little bit lower but it could be much, much higher than that,” Steele said earlier this month.
Of the sectors set to benefit from this trend, Steele said that utilities could a big winner of rising carbon prices. He tipped the airline, chemicals, steel and mining industries as being among those most at risk in the coming months.
