The European Union carbon price hit a record high of over €50/mt on Tuesday this week, i.e., €50.5/mt, more than double compared to pre-pandemic levels and the highest since the carbon market was launched in 2005. Although prices fell to €48.40/mt on the same day, Reuters said analysts think it is likely part of a long-term climb towards the price levels needed to trigger investments in innovative clean technologies. The main factor pushing prices up is the recent decision by the EU to increase its 2030 emissions reduction target to at least 55 percent below 1990 levels, from the previous target of a 40 percent reduction. As recently as December last year, the carbon price had never traded consistently above €30/mt.
The surge in carbon prices has attracted the attention of hedge funds and other financial investors who have been moving deeper into the carbon market, alongside utilities and other industries that trade the credits.
The EU Emissions Trading System (ETS) was designed to put a cost on carbon dioxide for some of the most highly polluting industries, from power generation to aviation. Brussels will this summer present a package of policies to slash emissions across all sectors to meet the 2030 target, including reforms to the EU carbon market. This should lead to an increase in demand for CO2 permits and make them scarcer. According to Mark Lewis, chief sustainability strategist at BNP Paribas, the carbon price will reach around €90/mt by 2030.
Companies in the steel sector and other heavily polluting industries such as petrochemicals and cement last week called on the EU to accelerate plans to implement a carbon border adjustment tax for imports from countries outside the scheme. This would help them to remain competitive, although it is not expected to come into force for another few years.