Europe’s carbon price has done something peculiar this year: It’s gone down.
But the continent’s power network is cleaning up so fast it’s destroying demand for carbon permits, slashing the price.
Welcome to Energy Daily, our guide to the energy and commodities markets powering the global economy. Today, reporter Will Mathis looks at the surprising slump in Europe’s carbon market. To get this newsletter sent straight to your inbox, you can sign up here.
Europe’s carbon price has done something peculiar this year: It’s gone down.
Right now, if a coal-fired power plant or a steel producer spews a ton of carbon dioxide into the atmosphere it will cost them around €57. While the market’s up this week, the price is still about 43% lower than a year ago.
It’s a move that’s surprised observers. The region’s emissions trading system is set to tighten in the coming years as the European Union works toward net zero in 2050.
But the continent’s power network is cleaning up so fast it’s destroying demand for carbon permits, slashing the price.
Last year, wind and solar farms produced their most electricity ever across the EU, a push accelerated by the energy crisis, when dwindling natural gas supplies sent fuel costs soaring.
Meanwhile, France’s massive nuclear fleet has recovered from crippling outages to generate near-record levels, and hydropower is rebounding from a drought. A warm and blustery winter has subdued energy consumption while boosting output from wind.
“Decarbonization in the power sector is happening faster than the carbon market can keep up,” said Mark Lewis, head of climate research at Andurand Capital Management.
CO2 prices have also been dragged lower by lackluster demand from industry as scores of factories were shuttered following 2022’s spike in energy costs.
With the market for emission allowances set to tighten significantly later this decade, it’s likely only a matter of time before prices pick up again. And that could make buying now a sensible move, according to Lewis.
“At these levels, we’ll look back in two years time and say: ‘If you could have bought carbon at €50, it was a really smart trade.’”
--Will Mathis, Bloomberg News