The price of permits on the European Union carbon market has reached record levels in the first trading days of the year, creating higher costs for polluters as the EU prepares to enforce deeper emissions cuts. The EU emissions trading system (ETS) requires power plants, factories, and airlines to purchase permits for each tonne of CO2 they emit, effectively putting a price on pollution.
On Monday, EU carbon permits hit a peak of €34.25 per tonne of CO2, the highest level since the market’s launch in 2005. Prices slightly decreased on Tuesday but remained around €33 per tonne. Factors such as cold weather, which increases demand for power and heating, and the delayed start of this year’s carbon permit auctions contributed to the price hike.
Analysts predict a long-term upward trajectory for carbon prices as the EU strengthens its climate change policies. The price of EU carbon permits has already increased by approximately 12% since a December meeting where EU leaders agreed on a more ambitious emissions-cutting target for this decade.
To achieve a net greenhouse gas emissions reduction of at least 55% by 2030, compared to 1990 levels, the EU plans to publish a package of measures in June that will restrict emissions across all sectors. This will involve revising the ETS to tighten the cap on the number of permits in the market, creating a supply squeeze that analysts expect to further drive up prices in the coming years.
Analysts at Refinitiv project that an EU carbon permit could cost €89 per tonne of CO2 by 2030 under the new emissions-cutting goal, significantly higher than the previously anticipated €23 per tonne by 2030 under the previous 40% emissions reduction target.
The more ambitious 2030 emissions target marks a significant shift for EU carbon prices, signaling that the market will eventually need to operate at higher price ranges due to tightening supply unable to meet demand, according to industry experts.
