The global recession fears have spread to the European carbon market and led to a 5% decline in prices although there are no new dangers of an escalation in the Ukraine war or the impasse between the European Union and Russia over its fossil fuels.
Before prices for European carbon permits plummeted to 58 euros as a result of the Russia’s invasion of Ukraine, they climbed to nearly 100 euros in February as fossil fuel demand increased amid the energy crisis and the anticipation of Russia’s move on Ukraine.
The prices were racing last week toward record highs as the bloc drafts new reform to remove speculators from the carbon market.
However, fears of a global recession drove down the price of fossil fuels, affecting the European Union’s Emission Trading System. The benchmark December futures contract closed at 87.02 euros per tonne of carbon dioxide equivalent on Monday, down 5% from the all-time closing high of 96.93 euros on February 8.
The decline in carbon prices is fueled by a weaker-than-expected auction for certificates under the EU ETS scheme. Traders are still focused on the Ukraine conflict. There appear to be no immediate threats of escalation, and the EU has yet to achieve an agreement on the proposed suspension of Russian oil imports.
According to BlackRock’s head of sustainable indexing, Manuela Sperandeo, cumulative flows into sustainable exchange-traded products (ETPs) are increasing, indicating an increase in investor interest in both green energy and the carbon market.
The European Parliament’s upcoming vote regarding a plan for a carbon market reform, which could lead to the system being expanded to include transportation and the construction industry, is also on the upside for the carbon prices.
Furthermore, European countries are increasingly relying on domestic resources such as offshore gas, potentially delaying the energy shift. They are also looking for coal, gas, and oil elsewhere, which is likely to keep prices high and add upward pressure on EU ETS quotations, unless demand drastically declines with the economic recession.