As high gas prices push electricity generators to use more coal-fired power, analysts have upped their European carbon market average price forecasts for 2024, but have cautioned that the Russia-Ukraine conflict might stifle industrial activity and decrease demand for carbon credits.
According to a Reuters’ survey of eight experts, EU Allowances (EUAs) would average 85.22 euros a tonne in 2022 and 94.23 euros in 2023. This is up 1.3% and 2.7% respectively from projections made in January.
Prices are expected to rise 4% to 97.90 euros per tonne in 2024, according to forecasts.
With increased gas prices and uncertainties over Russian gas supplies, coal-fired power plants across Europe are expected to be running at full capacity, pushing up demand for EUAs from utilities, said Refinitiv lead carbon analyst Ingvild Sorhus.
European gas prices have been skyrocketing since 2021, making it more cost-effective for certain generators to burn coal, which emits almost twice as much carbon dioxide as gas plants, thus driving up demand for carbon credits.
Despite strong demand, Sorhus and other experts warned that the impact of Russia’s invasion of Ukraine on energy prices and industrial demand in Europe is yet unknown.
Extremely high energy prices are threatening to destroy industrial demand, which is negative for EUA pricing, said Goda Aglinskaite, a ClearBlue Market Analyst.
Forecasts, on average, predict that prices will rise over the next three years from present levels of roughly 84.00 euros per tonne.
European Union has released its Fit for 55 policy in 2021, which aims to reduce net greenhouse gas emissions by 55% by 2030 compared to 1990 levels. Because of the policy, the EU Emission Trading Scheme remains fundamentally structurally bullish, said Benjamin Lee, analyst at Energy Aspects, highlighting their expectation for growing EUA prices over the next years.