The continuously increasing gas prices have turned European electricity generators to use more polluting coal-fired power and drive up demand for carbon permits. Analysts have thus upped their average price projections for carbon permits in Europe.
According to a Reuters poll of seven analysts, EU Allowances (EUAs) are predicted to average 84.14 euros per tonne in 2022 and 91.71 euros in 2023. This is up 27.2% and 38.5% from October predictions, respectively.
Analysts noted that a continuance of high gas prices, fueled by fears over Russian supplies, growing tensions on the Russia-Ukraine border, and the future of the new Nord Stream 2 pipeline connecting Russia and Germany, was bullish for carbon permits.
Bernadett Papp, a Vertis analyst, stated that the upside risk will be present for the rest of the year, “With the start of Nord Stream 2 facing opposition, European gas prices could remain high.”
As tensions rise between Russia and Ukraine, Germany has warned it may block the Nord Stream 2 pipeline as part of possible sanctions if Moscow tries to invade its neighbor. Russia, on the other hand, has stated that the pipeline, which stretches from Russia to Germany across the Baltic Sea, will help stabilize gas markets by increasing supply.
Increasing gas prices has turned certain electricity generators to burn coal, which emits almost twice as much carbon dioxide as gas plants.
“Until December 2023, our gas-to-coal switching curve still projects coal being more cost-effective than gas, implying a potential bullish impact on EUAs,” said Goda Aglinskaite, carbon market analyst at ClearBlue.
Carbon prices might fall if gas prices fall and coal consumption declines, according to the researchers.