EU carbon prices hit record highs after COP26

European carbon prices jumped to a peak ever above € 66 per tonne. tonnes, as traders bet that the outcome of the COP26 climate negotiations would likely strengthen emissions markets, which are seen as a key tool for decarbonisation.

The EU’s emissions trading system, which sets the price for utilities and industry to emit a tonne of carbon into the block, rose 2.6 percent on Tuesday to € 67.65 per barrel. tons – and continues Monday’s rally, where the meter rose 5.5 percent. Carbon prices are now more than double the level at the beginning of the year and rose from € 55 per tonne. tons a month ago.

Traders and analysts said the outcome of the COP negotiations, although not as strong as some had hoped, still pointed to a trajectory where governments will have to watch the cost of carbon rise to help push off highly polluting fuels like coal out of the grid while encouraging the industry to invest in cleaner technologies.

Tom Lord of Redshaw Advisors said that although there were some technical factors contributing to the gains, trading in the EU ETS on Monday had been “one-way traffic all day”.

“The gain accelerated [Monday] afternoon, when the all-time high appeared, “said the Lord,” and further technical purchases, as the all-time high darkened, secured one last shower. “

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Mark Lewis of the Andurand Capital hedge fund said there was a “slight post-COP euphoria” as “although the result may not have been as strong as some had hoped, there was still a clear signal that politicians need to to take carbon prices seriously, if we are to see emissions fall ”.

“There is a general feeling that the CO2 markets are coming out of the COP process strengthened,” Lewis said. carbon in the atmosphere is the scarcest resource of all. “

The EU CO2 market is politically constructed, with legislators able to gradually tighten the supply of allowances to help boost prices. Investors have been rushing into carbon for the past 18 months, and they have believed that stimulus plans and investment in post-pandemic decarbonisation mean that carbon prices should rise.

Projects such as carbon capture and storage, green hydrogen produced by electrolysis and other green initiatives all benefit from stronger carbon prices, as they make fuels such as coal less competitive. In the short term, they can also increase the demand for natural gas, as coal, which produces twice as much CO2 when burned as gas, becomes less attractive.

However, gains in the carbon market have led to fears in some highly coal-dependent countries in the EU of the costs – although in recent months this has been dampened to some extent by record high gas prices caused by tight supplies globally.

Some analysts were more cautious about the impact of the UN climate negotiations in the EU, with Energy Spectators warning that they believed there was only “an outside chance” that the EU would tighten its CO2 reduction targets.

“The EU will see itself as already having the most aggressive emission reduction targets and will put pressure on others to get closer to its targets,” Energy Aspects said.

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