European carbon prices surpassed 85 euros due to higher compliance buying caused by a rapid increase in coal-fired power output in the bloc, resulting in an estimated 60 megatonne of additional carbon emissions.
Demand was three times higher than the auctioned quantities in the most recent auction, providing strong support to the exchange traded market.
After Russia cut its gas supply to Poland and Bulgaria in late April, European Union Allowances futures prices rose above 90 euros on May 6 and on May 17. More demand for fossil fuels implies increased emissions, which is expected to further push up carbon allowance price as more businesses need these credits to offset carbon footprints.
Speculators, who had left in March due to market volatility caused by Russia’s invasion of Ukraine, appear to have returned to the market as the carbon price rose beyond 80 euros. Financial players are projected to have grown their long positions by 40%.
Government policies, equity markets performance as well as increased emphasis on green energy are currently driving the trading market. However, in the long run, coal and gas consumption is expected to decrease as more countries and firms shift their focus to clean energy.
According to environmental finance company Vertis, European Union’s market stability reserve (MSR) mechanism might absorb 321 megatonne of EUA in 2022-23, creating supply tightness. Yet, the European Parliament’s environment committee decided in April to endorse extending the MSR until 2030 as part of an overall reform of the EU ETS.
The EUA Dec 22 price is seen at 91.85 euros, with a range of 85-95 euros expected, with the old high of 85 euros creating a new floor. The 95-99 euros all-time high remains a significant barrier and would require a particular event to break. Brannvoll ApS anticipates a trading range of 65-100 euros in 2022, with an average of 80 euros.