Carbon prices set to decline as Europe accelerates energy transition


Hedge fund manager Per Lekander, who has been historically bullish on carbon prices, is predicting that carbon credit prices will drop as Europe speeds up its energy transition.

“I see coal and gas prices falling, and I think they are going to go way lower in the longer term. And the emissions market is going to collapse,” he told Financial Times in an interview published on July 18.

Lekander was a carbon credit market bull for years and capitalized on the price rally in 2018.

Now the longer-term prospects of the carbon credits market are not so blooming amid a faster than previously thought transition from fossil fuels into renewables.

Earlier this year, the European Union member states and the European Parliament reached a political agreement to lfit the targeted share of renewable energy in the EU’s energy consumption to 42.5% by 2030, up from a current goal of 32%.

The provisional political agreement, part of the EU’s efforts to ditch Russian energy as soon as possible and reach net-zero by 2050, will have to be endorsed by both the EU Council and the European Parliament to become law.    

The EU’s Emissions Trading System (EU ETS) is a cornerstone of the EU’s policy to confront climate change and a key tool for reducing greenhouse gas emissions cost-effectively. The EU is the world's first major carbon market and remains the largest one.

As Europe looks to lower emissions, the carbon credit prices are set for a drop, according to Lekander, a managing partner of investing group Clean Energy Transition.

Earlier this year, the carbon prices in the EU ETS hit a record $112 (100 euros) per ton, before declining to around $95 (85 euros) a ton currently.

The current carbon price is 430% higher compared to five years ago, per FT’s estimates.

Lekander considers closing out his short position if carbon prices fall to $67.50 (60 euros) per ton.

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