European emissions allowance prices fall to their lowest level since 2021
European emissions allowance prices have plunged to their lowest level since 2021. The reason is fears of recession and weak demand from the energy and industrial sectors. Most traders expect allowance prices to continue falling in the short term.
The price of the European Union Allowance (EUA) contract for next December, the most liquid allowance product, reached 56,4 EUR per tonne this week. This is the lowest price since September 2021. At this time last year, the EUA price rose to a record high of more than 100 EUR/t, but it has been on a steep downward trend since the fourth quarter of 2023.
Fears of recession, political problems and declining volatility in the global gas and electricity markets, as well as falling emissions in the energy and industrial sectors, have contributed to the decline in EUA prices. Most traders and analysts expect, according to S&P Global Commodity Insights, the downward trend in EUA prices to continue as the region prepares for further economic challenges in the coming months.
S&P Global analysts expect average EUA prices to fall to 63,90 EUR/t in 2024, compared with 85,30 EUR/t in 2023 and 81,50 EUR/t in 2022.
EU climate policy
The recent price plunge suggests that market participants are placing greater weight on long-term market fundamentals than on the "political narrative", one Brussels-based carbon trader said.
"The fall in prices below 60 EUR/t serves as a benchmark and a metaphorical proxy for understanding how secondary climate policy ambitions are evolving in the eyes of market participants when it comes to defining the fair value of EUA allowances in the short term," he said.
The EUA price plunge came despite the announcement of ambitious EU climate targets. On 6 February, the European Commission proposed that the EU cut CO2 emissions by 90% by 2040 as part of its broader climate objectives.
This target is part of the bloc's European Green Deal, which also calls for the EU to cut greenhouse gas emissions by at least 55% by 2030 compared with 1990 and achieve net-zero emissions by 2050. Many analysts and companies insist that stronger policies are needed to achieve this goal.
"The European Commission's proposal for a 2040 carbon reduction target is only the beginning of a long journey towards a robust policy, which will be decided by the next Commission and EU Parliament, formed after the June elections," S&P Global analysts said.
"It is clear that policy certainty is more important than ever for those seeking to deliver Europe's decarbonisation ambitions," they added.
Translation disclaimer
This article is a machine translation of the Czech original and has not yet been fully reviewed. In case of any doubt, please refer to the Czech version.
