Speculation drives the price of CO2 to its all-time high

At the end of February, the price of CO2 exceeded 100 euros per ton emitted. This is the first time that the European Union Emissions Trading System (ETS) has reached a triple-digit figure in its 18-year history, thus crossing a symbolic threshold which, according to experts, could make the most polluting industries promote the implementation of measures to reduce their emissions.

The price of carbon has seen rapid growth since 2020, when EU lawmakers set new rules to speed up the bloc’s decarbonisation efforts. The cost of emission rights has increased significantly in recent months due to the recent approval of the RepowerEU, the package of measures presented by Brussels to gain energy independence from Russia. In fact, in August 2022, in full tension around the Nord Stream gas pipeline, it reached 99 euros per ton.

Among the different theories that are being considered to explain the reason for the rise, analysts highlight speculative purchases, settlements with premiums from auctions in the primary market and a possible rebound in industrial production after the drop in energy prices.

Purchase of rights

The proximity of the month of April, the date on which the industries affected by the ETS must surrender their rights of CO2 due to the emissions of the previous year, is another possible cause, since the closing of the financial year always stimulates purchases.

On the other hand, the cold waves that have occurred in recent months and the drop in production Renewable energy increases demand, since electricity has to be produced from fossil fuels.

European legislators plan to continue reducing the limit on carbon emissions until they are completely reduced -an objective that is expected to be achieved in 2039- and achieve neutrality in the community territory by 2050. Experts consider that this fact will make the price of carbon rise even higher under the perspective that within 15 years the allocations will have disappeared.

Meanwhile, the EU is phasing out the distribution of free carbon allowances for sectors that risk moving to parts of the world with less stringent greenhouse gas emission standards. These free allowances will be replaced by a tax on those carbon-intensive goods that are imported from abroad, such as iron, cement and steel. MEPs want this measure to start applying in 2023, with a transition period until the end of 2026 and full implementation by 2032.

Sectors that are not covered by the current Emissions Trading System, such as transport, agricultural buildings and waste management, still rrepresent about 60% of total EU emissions. The Commission aims to see emissions from these industries cut by 40% by 2030 compared to 2005 based on agreed national emissions targets in the effort-sharing regulation that are calculated based on the per capita gross domestic product of the countries. The Fit for 55 package contemplates that buildings and road transport will be covered by both the effort-sharing regulation and the new ETS.

Parliament wants the ETS to also apply to all flights leaving the European Economic Area as a formula to promote the use of sustainable fuels, which must begin to be supplied from 2025 and represent 85% of all fuel aviation at EU airports by 2050.

Likewise, the MEPs propose extending the emissions trading scheme to maritime transport to reduce emissions of ships by 2% from 2025, 20% from 2035 and 80% from 2050 compared to 2020 levels. The cuts should apply to ships over 5,000 gross tonnage, which account for around 90% of CO2 emissions.

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Deborah Acker

I write epic fantasy; self-published via KDP. Devoted dog mom to my 10 yr old GSD, Shadow! DM not a priority; slow response at best #amwriting #author.

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