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The long view on EU carbon prices


Apr 22, 2024

Low prices are likely only temporary.

After breaking the historical level of 100 EUR per ton CO2 last year, the European ETS carbon price has cratered as low as 50 EUR per ton. It currently sits around 65 EUR per ton. 

Low carbon prices are a serious headwind for decarbonization efforts, because it makes projects less bankable and, crucially, it deprives the European Union from a much needed revenue source to subsidize expensive first mover projects.

Yet we shouldn't worry too much. The consensus is currently that this is not only due to booming renewables, but also to a short term effect from lower economic activity, and from the RePowerEU policy which auctioned off early 20 billion EUR worth of allowances to reduce dependence on Russian gas. 

Early is the keyword here. The 62% reduction objective of ETS emissions by 2030 compared to 2005 has not been changed. In fact it keeps being tightened. To compensate the increased supply of allowances in 2024 and 2025, it means that we can expect an almost 20% decrease in allowances from 2025 to 2026, and an almost 50% decrease of allowances from 2025 to 2030. That might hurt.

In industry, not everything can be electrified and projects take many years from inception to operation. Hard-to-decarbonize industries are looking at carbon prices between 100 and 200 EUR/ton for viable investments. Take the long view.

Credits to Homaio for the full details:

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