EU’s CO2 certificates climb above EUR 48 per ton to all-time high

The cost of releasing greenhouse gases into the atmosphere within the European Union’s Emissions Trading System is continuing to set records and nearing EUR 50 per carbon dioxide equivalent. The price at ICE Futures Europe topped EUR 48 for the first time after strong indications from the European Commission that transportation and buildings would be included.

Countries, companies and institutions are joining the initiative to lower their emissions or even become carbon neutral within the next few decades. The trend has been continuously boosting the demand for carbon dioxide allowances in the EU’s Emissions Trading System or ETS, helping drive their prices almost 50% higher since the beginning of the year.

The value of CO2 certificates reached an intraday all-time high of EUR 48.05 per ton today at ICE Futures Europe, and the benchmark has regularly been posting record closing levels since December. ETS is the world’s largest market system of its kind. The credits, standardized as tons of carbon dioxide equivalent, are approved in auctions, and users can trade them if they have a surplus.

US, UK also raising climate ambitions

The amount of allowances in free circulation is reduced every year if it exceeds a determined threshold as some are then withdrawn under the Market Stability Reserve (MSR), but they can also be returned through auctions in case of a shortage. The most important upward factor recently was the statement by European Commission President Ursula von der Leyen that the EU may include transportation and buildings into ETS.

It is still unclear if owners of buildings and cars would directly pay for their emissions under a changed system or if the burden would be on the automotive industry and construction companies

The push isn’t new, but the announcement from the top position in Brussels adds weight. At the same event, the United States President Joe Biden’s climate change summit, both his country and the United Kingdom publicly upgraded their green ambitions. Some analysts and market participants have been attributing the rally in prices of CO2 certificates to financial speculation and calling for regulators to make limitations stricter.

EU summit scheduled for May 25

The European Commission hasn’t revealed whether owners of buildings and cars would directly pay for their emissions or if the burden would be on the automotive industry and construction companies. It intends to introduce stricter rules for new vehicles and energy efficiency in buildings, too.

The EU scheduled a special summit for May 25 in order to determine its next steps. ETS covers as much as 45% of the trading bloc’s total emissions. It still excludes sectors like agriculture and waste.

Economists from Berenberg Bank recently said they expect prices of the EU’s carbon credits to hit EUR 110 by the end of the year. The value is fueled in part by tougher standards being rolled out by the administration in Brussels and some member states.

The United Kingdom established its own ETS early in 2021 to separate it, but trading is set to start on May 19, so companies in the country buying CO2 certificates from the EU’s system may have contributed to rising prices. Including transportation in the ETS could push car fuel prices higher. Of note, emissions measured within the EU’s ETS dropped 13.3% last year, mostly amid the shutdowns related to the coronavirus pandemic, which suppressed demand for carbon allowances.