On Friday, European Union's carbon permit price hit a new high, closing at above 96 euros, with analysts predicting that the landmark 100-euro mark will be reached soon.
The EU emissions trading system (ETS), which was launched in 2005, mandates factories, power plants, and airlines to pay for each tonne of carbon dioxide they emit - the higher the permit price, the higher the cost of producing emissions, though some companies receive free permits to help them stay cost competitive in global markets.
Carbon costs have increased by more than 200% since the beginning of 2021, owing to reasons such as rising gas prices, which have encouraged some power companies to switch to coal, resulting in increased emissions and permit demand.
On Friday, the benchmark EU carbon permit contract reached a high of 97.50 euros per tonne before closing at 96.43 euros, the highest close since the carbon market began in 2005.
Analysts believe the recent increase was fueled by technical purchasing and that a price of 100 euros is within reach, as seen by a large amount of open interest in CO2 options contracts at that price.
The increasing trend in European carbon pricing began last year, when EU published a slew of new legislation aimed at speeding up emission reduction by 2030, including a market reform that analysts predict will drive up CO2 prices further.
However, a 100-euro carbon pricing, according to Refinitiv, may muddle the political debate over such policies, as well as the EU's objective of reducing emissions by 55% by 2030.
High CO2 pricing are driven by speculators, said countries such as Poland, which has urged the EU to intervene in the market. Other countries see a strong carbon price as critical to achieving climate goals, citing the European Securities and Markets Authority's recent judgment that the ETS is free of abuse.
The EU ETS provides a financial incentive for businesses to reduce emissions and invest in green technologies by putting a price on pollution. However, the price was too low for years to promote that, given the massive upfront expenditures required
