The EU carbon price has extended its record rally to rise above € 50 per tonne for the first time, pushing the cost of pollution in the bloc to more than double its pre-pandemic level.
The EU Emissions Trading System (ETS), designed to impose a cost on CO2 for some of the most polluting industries, from power generation to aviation, has risen by more than 50 % since the beginning of the year.
As late as December of last year, the price of carbon had never been consistently traded above € 30 per tonne, but prices have risen as traders bet the availability of carbon allowances. will need to tighten in the coming years if the EU is to meet aggressive climate targets, including reducing emissions by 55% by 2030.
The surge has made carbon one of the hottest commodities in the world, even as the surge in the sector has raised fears of inflation. While environmentalists have welcomed the rising cost of pollution to electricity providers and industry, there are concerns that the pace of the rise may be faster than that to which businesses can easily adapt.
Last week, companies in the steel sector and other heavily polluting industries such as petrochemicals and cement called on the EU to speed up plans to implement a carbon border adjustment tax for imports. from countries not belonging to the regime, fearing that they will be at a competitive disadvantage.
The steel industry in Europe, for example, would face carbon costs of around € 2 billion this year at current price levels, despite having received the majority of its carbon allowances free of charge from member countries.
As part of the bloc’s ETS, companies are allocated a number of allowances to cover at least part of their emissions. If they reduce the amount they pollute, for example by using renewable fuels or natural gas instead of coal, they are free to sell the remaining allowances for profit. But if they increase pollution, they have to buy additional allowances to cover their emissions, under the so-called cap-and-trade model.
Soaring carbon prices have caught the attention of hedge funds and other financial investors who have become increasingly engaged in carbon trading, alongside utilities and other industries that trade the credits.
Some industry analysts have suggested that prices could reach € 100 per tonne by the end of the decade, a price they believe is necessary to make alternative fuels such as “green” hydrogen competitive.