Guest essay by Eric Worrall
Cold weather, high gas prices, market-manipulating politics and dwindling wind power have created the perfect storm, driving up energy costs in Europe.
WHY THE PRICE OF EU CACBON LICENSE IN HIGHS RECOGNIZED
January 5, 2022
Via Valerie Hernandez, International Bank
On September 27, the price of European Union (EU) carbon emissions permits rose above €65 per ton for the first time, prolonging a significant increase in carbon permits starting in March 2020 and shows many signs of continuing to the sky.
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So why is the price of carbon permits at record levels today? A few key factors could explain the ongoing uptrend, but The current shortage of natural gas is probably the biggest impact. Reduced supply in much of Europe has not only forced gas prices up – gas prices in the region have increased by more than 350% in 2021-October and by 140% in the past three months – but also push power producers towards cheaper coal, a significantly more polluting resource than gas.
As a result, demand for coal from the power generation industry has skyrocketed throughout much of 2021, thus, driving demand for carbon permits under both EU and UK emissions trading schemes. Indeed, in early September, coal accounted for more than 5% of UK electricity production, the highest level since March. As Tom Lord, head of trading at consulting firm Redshaw Advisors, told Financial Times at the beginning of October, price increases are being “driven, we believe, due to increased utility demand, driven by increased fossil fuel production”.
Part of the protest over carbon permits is also due to the political reforms that have been implemented this year to achieve Europe’s climate goals. In July, the EC made a series of proposals to expand the scope of the EU ETS from around 22% of EU greenhouse gas emissions today to more than two-thirds by 2030. Known as the Matching Package for 55, the proposals also expand the EU ETS to include the scope of the industry. high emission transportation, reduce the number of licenses issued for certain industries free (originally a move designed to help them compete internationally) and reduce the number of licenses circulating each year at a faster rate than it currently has.
Therefore, a reduction in the supply of carbon permits will create significant upward pressure on prices. “This is a pioneering package to make polluters pay, according to Tim Gore, head of the Carbon Economy and Circulars program at the European Institute of Environmental Policy (IEEP), extending the EU-wide carbon price tag to more than two-thirds of EU emissions by the end of the decade. this. “Energy-intensive industries are large free-remainers – the proposal to phase out emissions subsidies only by 2036 must be strengthened.”
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It looks like prices will depend at least in part on gas prices. But a colder-than-normal winter could sustain rising coal demand. Citigroup analysts reported at the end of September: “The tight gas market will continue to pull EUA prices higher. …
Furthermore, over a longer period of time, Fit is devoted to 55 reforms aimed at reduce the overall supply of carbon permits to help the bloc achieve its 55% emissions reduction target, which is likely to provide significant support for carbon prices. …
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Read more: https://internationalbanker.com/brokerage/why-prices-of-eu-carbon-permits-are-at-record-highs/
Raise your hand to anyone who wants to open a new factory in an EU country.
The increase in gasoline prices is partly due to Russia redirects energy to China, after Prime Minister Xi Jinping is seen as an attempt to force reduction of coal burning prior to COP26 caused inventory shortages in China and widespread power outages.
But European Union in my opinion is to blame for a string of decisions that make Europe too dependent on Russian gas and bet the house on unreliable energy sources like wind power. A fact that the EU has tacitly acknowledged, with Their recent shocking decision include gas and nuclear energy in their definition of “green energy”.
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