The European Union (EU) announced on Wednesday a significant boost to the permits allowing pollution, which could potentially drive them to a record level that has been on the brink of breaching multiple times this year.
The European Commission revealed that auctions for the permits would be postponed until early February, instead of the usual start in January. This extension of the holiday period, when governments typically refrain from holding auctions, will prolong the disruption by several weeks.
Tom Lord, the head of trading and risk management at Redshaw Advisors Ltd., expressed, “Even with the normal three-week shutdown, we observe a rise in prices. To extend this period by a month is quite remarkable. We may very well witness carbon prices exceeding 30 euros, and with the right conditions during this auction shutdown, they could even surpass the all-time high of 31 euros.”
As a consequence of this development, EU carbon prices soared by as much as 5.6% and were trading at EU27.25 per ton in London at 1:35 p.m.
This technical glitch occurs alongside two potentially positive events for the carbon market: the distribution of a coronavirus vaccine and a successful trade agreement between the United Kingdom and the EU.
Hence, the alteration in the auction schedule has the potential to propel the carbon price above 30 euros per ton, a threshold it previously reached twice this year before experiencing a decline.
Jahn Olsen, a carbon analyst at BloombergNEF, noted, “It could expedite the attainment of 30 euros per ton, sooner rather than later. However, it will not impact the medium to long term supply-demand balance.”
Nevertheless, the reduction in supply due to the auction schedule change may provide a glimpse into the future of the carbon market, as the EU gradually diminishes the issuance of permits in the market.
“The question now is: how high will prices rise?” pondered Ariel Perez, the head of environmental products at Hartree Partners.
