Platts: Czech emissions allowance prices to average around EUR 90 this year

Last year, emissions allowance prices exceeded the 100 EUR/t CO2 threshold for the first time ever, averaging 85.23 EUR according to S&P Global Platts data. At the beginning of 2021, their price was still below 35 EUR. The sharp price increase also fed through into energy prices during the energy crisis, although it was largely overshadowed by the rise in gas prices. Gas prices are now moving into a range expected to become the new normal, while high allowance prices are preventing electricity prices from falling further. Can allowance prices be expected to decline? Platts analysts say no.

At the beginning of this year, emissions allowances are trading well below their 2023 highs, at around 76 EUR. Analysts currently expect strong support at this level, due to the cold weather forecast across Europe in the coming days.

Traders see support at the current level despite an increase in the number of allowances being put on the market, as maritime transport was brought into the system at the beginning of the year. According to Platts data, annual emissions from the maritime sector are expected to reach around 90 million tonnes of CO2 equivalent (CO2e) in 2024, with an estimated 85 million tonnes of CO2e the following year.

Platts analysts expect emissions allowance prices to rise to an average of 89.6 EUR this year, compared with 85.23 EUR in 2023. The first impetus for growth is expected to come from the approaching cold weather and the resulting higher demand for heat. Industrial activity is also expected to be higher than last year, going hand in hand with greater energy consumption.

Companies covered by the EU ETS must buy one emissions allowance for every tonne of CO2 they emit. Companies should normally surrender their allowances for 2023 by the end of April 2024, but the government has proposed moving the deadline to the end of September. The aim is to improve the cash flow of the companies concerned.

Pass-through to electricity and heat prices

High emissions allowance prices feed through not only into electricity prices, but also into heat prices. Put simply, generating 1 MWh of electricity from a coal-fired power plant requires the surrender of one emissions allowance. When a coal-fired power plant is the marginal plant in the market (the last plant needed to meet demand, and therefore the plant that sets the price), the allowance price is passed through to the electricity price on a one-to-one basis.

As a result, electricity prices cannot return to their previous levels of around 50 EUR/MWh, since we still do not have enough zero- or low-emission generation sources, especially during the winter season. High emissions allowance prices—and, consequently, high electricity and heat prices—are, however, making investments more attractive, whether in renewables or, for example, heat pumps.