Carbon Markets

A closer look at recent carbon prices

On Wednesday 21 April 2021, Members of the European Parliament adopted an ambitious new climate target: a 55% reduction in greenhouse gas emissions by 2030 compared to 1990 levels. The very next day, carbon prices soared to an unprecedented level of €47 per tonne. This was enough to restore confidence in the effectiveness of the European emissions trading system (ETS), a market created in 2005 to encourage producers to move away from fossil fuels by making their use more expensive. 

In 2020 the CO2 market had a good year, especially in the context of the Covid-19 global pandemic. Most key performance indicators remained at similar levels to those of 2019. Despite the economic crisis, confidence in the ETS as a tool for EU decarbonization remained, with the price of CO2 ranging from €16/tCO2 to €35/tCO2. In fact, the EU ETS revealed a level of carbon pricing in 2020 not seen for almost a decade.

2021 started with a bang, as the carbon price rose above €40/tCO2. By May 2021 the price per carbon tonne was record breaking, surpassing the €50 per tonne mark. The EU’s announcement of higher CO2 reduction targets, which must reach 55% by 2030 with a view to achieving carbon neutrality by 2050, is fueling the price rise. Brussels is due to detail its sector-by-sector strategy for meeting this commitment this summer, which is expected to drive up demand for carbon credits. Price forecasts for the period 2021-2030 have been revised upwards, estimated at between €70/tCO2 and €105 in 2030.

This year marks the end of the third phase (2013-2020) of the EU Emissions Trading Scheme (EU ETS). Although this phase has been marked by regulatory adjustments, economic recovery and a low EUA price, the environmental objective of the EU ETS has been achieved, exceeding targets. Indeed, the EU ETS has now reached its Phase 3 emissions reduction target (-21% CO2 emissions in 2020 compared to 2005) as EU ETS emissions have decreased by -42.2% between 2005 and 2020.

The EU ETS is now at the start of phase 4 up to 2030, with a strengthened ambition that will be further revised to align with the ambition of carbon neutrality in 2050.

Graph: Financial Times, 2021

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