October 2, 2023


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Analysts raise EU carbon price forecasts as tougher climate targets loom

Smoke billows from the chimneys of the Belchatow power station in Belchatow, Poland, October 31, 2013. REUTERS/Kacper Pempel

Analysts have raised their European carbon market average price forecasts after prices hit record highs this month on expected toughening of EU climate targets and as cold weather drove up the cost of carbon permits.

EU Allowances (EUAs) are expected to average 46.28 euros a tonne in 2021 and 55.67 euros in 2022, a Reuters survey of eight analysts showed. That is up 17.9{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} and 20.4{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} respectively from forecasts made in January.

The average forecast for prices in 2023 was 56.20 euros a tonne, representing a 22{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} increase.

About 45{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} of the European Union’s output of greenhouse gases is regulated by the Emissions Trading System (ETS), which was set up to tackle global warming by charging for the right to emit carbon dioxide (CO2).

The benchmark price of EU carbon allowances traded in the scheme has risen by about 45{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} since a December meeting when EU leaders agreed a more ambitious target on emissions cuts this decade, hitting a record high of 44.95 euros a tonne this week.

The European Commission is expected to publish details in June on how the carbon market will be reformed to help to achieve the tougher target, which is expected to lead to greater demand and scarcity of carbon allowances.

“Higher EU 2030 climate ambition and sustained rising interest from financial investors have supported the upward move in carbon,” said Refinitiv analyst Ingvild Sorhus.

“Moreover, last-minute compliance buying and a strengthening energy complex due to cold winter weather fuelled the EUA price rally.”

The rapid price rise and bullish forecasts have tempted more financial institutions and trading houses into the market, further boosting demand, with Trafigura the latest company to launch a dedicated carbon trading desk this month.

“The carbon price direction has been increasingly defined by the growing presence of financial institutions in the EU ETS,” said Vertis analyst Bernadett Papp.

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