The industry generally believes that the shortage of carbon emission quota permits is the main reason for the current high carbon price. In the case of high carbon emission costs, European countries where economic inflation has hit a multi-year high are under pressure from further increases in energy costs. The imbalance between
supply and demand is the main cause.
Recently, the carbon price of the European Union Carbon Emissions Trading System (ETS) broke through 99 euros/ton, a record high. During the same period, the carbon price in the UK's separate carbon trading market also broke through the historical high, reaching more than 97 pounds per ton. Since the beginning of
this year, the EU carbon price has maintained a fluctuating upward trend. After the conflict between Russia and Ukraine, the EU carbon price temporarily dropped by 40% to 58 euros/ton. However, under the influence of factors such as higher natural gas consumption and energy policy adjustment, the current EU carbon price has increased by 22% compared with the beginning of this year.
On August 19, the futures price of carbon emission allowance permits delivered by the EU in December this year reached 99.14 euros/ton, a new high since the establishment of the EU carbon emission trading system. The UK carbon trading market also showed a similar rapid upward trend. The main reason for the high carbon price in the EU is the short-term supply contraction of
carbon emission quota permits and the rising demand. On the supply side, in August this year, the monthly auction volume of carbon emission permits in the European Union was 24.1 million tons, down 43% from July, and the rapid tightening led to tight market supply.
From the demand side, due to the high temperature and drought weather in the northern hemisphere in summer, the output of low-carbon power such as hydropower and nuclear power in European countries has decreased significantly. The demand for fossil fuel power generation in European countries has continued to rise, and the corresponding carbon emissions have also risen sharply. In France, for example, nuclear power output this summer was only about 50% of total capacity, and France had to start importing electricity from other countries dependent on fossil fuels. During the same period, the wind speed in Germany, Britain and other places also declined, and the level of wind power output also declined significantly. & nbsp; & nbsp;
Restarting coal power pushes up carbon emissions & nbsp; & nbsp; To make matters worse, natural gas power generation, which has relatively low carbon emissions compared with coal power, has become uncompetitive at a time of high fossil fuel prices. Since the beginning of the conflict between Russia and Ukraine, the price of natural gas in Europe has continued to rise. As of the second week of August, the benchmark price of natural gas in Europe has risen day by day to a new high since March this year, which directly makes coal-fired power generation, which bears high emission costs, more economical.
At the same time, the European Union has repeatedly urged member States to save gas in preparation for the coming winter. In August this year, the European Union announced that it had reached an agreement on reducing natural gas consumption, requiring all EU member States to voluntarily reduce natural gas consumption by at least 15% from August this year to March next year on the basis of the average consumption of natural gas in the past five years, to increase natural gas stocks as much as possible, and to cope with the possible risk of natural gas supply interruption. At present, this agreement has formally entered into force. Germany, France and other major European economies have all announced plans to restart coal-fired power plants in the
face of skyrocketing gas costs and the risk of potential gas outages. German utility Uniper will restart its Heyden hard coal power plant from August 29 and is expected to operate for a year. It is understood that the hard coal power plant has been shut down for a long time as a preparatory power supply. Meanwhile, France, Austria, the Netherlands and other countries have also announced that they will restart coal-fired power plants. Ember, an industry research Institute, estimates that the scale of coal-fired power generation that has been restarted has reached 14 million kilowatts, accounting for 12% of the existing coal-fired power generation capacity in the EU. In this case, the carbon emissions in the EU power sector will rise further.
In addition, the continuous hot weather has also stimulated the growth of downstream electricity demand, and residential and commercial electricity consumption has continued to rise, which has also kept the prices of natural gas and coal high. It is predicted that the carbon emissions of Germany, France, Britain and Italy, the major European economies, will increase by 10% from January to September this year compared with the same period in 2019. ICIS, a market research Institute, points out that Germany's decision to restart coal-fired and oil-fired power generation this winter could lead to a 5% increase in the EU's total carbon emissions next year. & nbsp; & nbsp;
EU energy system continues to be under pressure & nbsp; & nbsp; Rising demand for carbon emissions has provided fundamental support for European carbon prices. Reuters reported that several market analysts have raised their carbon price expectations for the EU carbon market between 2022 and 2024. Data show that in 2022, the average carbon price in the EU is expected to be 88.36 euros per ton, and in 2023, the average carbon price is expected to be 97.66 euros per ton, which is 3.7% and 3.6% higher than forecast released in April this year, respectively. It was 4.2% higher than previous forecast. The rise in
carbon prices has raised concerns in the industry, and many analysts believe that this may restrain the level of downstream industrial output and further push up inflation in European countries.
It is understood that Norsk Hydro, a Norwegian industrial company, recently announced that it would shut down an aluminium smelting plant in Slovenia, while several zinc smelting plants were shut down due to soaring electricity prices. According to the latest data released by Eurostat, an EU data agency, the annual inflation rate of 27 EU member States reached 9.8% in July this year, with Estonia, Latvia and other countries even exceeding 20%, mainly due to the rising cost of energy use.
In response to this situation, Spanish Prime Minister Sanchez has recently proposed to the European Union that he hopes to set a "ceiling" for carbon prices to ease the rise in energy costs and inflation. According to the analysis of S & P Global Platts, an
industry organization, EU carbon prices may show a downward trend in September as the supply of EU carbon emission permit auctions returns to normal levels and the weakening of macroeconomic expectations may also hit carbon emission demand. But according to BNEF analyst MarikoO 'Neil, while rising energy costs may lead to some plant closures, burning coal and fuel oil produces significantly more pollution than burning natural gas, and even if only a few companies switch from natural gas to coal, it may be difficult to reverse the trend of rising emissions.
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