European carbon prices plunge to 28-month lows

European carbon permits slumped to multi-year lows on Feb. 13 as demand from the power and industrial sectors remained in the doldrums.

EU Allowances under the bloc's Emissions Trading System were trading at a 28-month low of Eur56.52/mtCO2e ($60.55/mtCO2e) at 16:41 GMT on Feb. 13, according to data from the Intercontinental Exchange.

Platts, part of S&P Global Commodity Insights, assessed EUA contracts for December delivery at Eur56.39/mtCO2e on Feb. 13. This was the lowest since October 19, 2021, S&P Global data showed.

This time the previous year, EUAs rose to a record high of over Eur100/mtCO2e, but since the fourth quarter of 2023, prices have been on a steep downward trend.

Macroeconomic concerns, political challenges, and falling volatility in the global gas and power market have all added to bearish sentiment.

This weakness was also reflected in the recent EU daily carbon auction, with prices and demand falling swiftly.

The cleared price for the EU auction on Feb. 13 for 3.0995 million allowances was at Eur54.24/mtCO2e ($58.45/mtCO2e), the lowest auction price since Aug. 3, 2021.

Most traders and analysts expected the bearishness sin in the EU carbon complex to continue as the region braces for further economic challenges in the coming months.

This has led many of them to cut their EUA 2024 price forecasts.

Recession concerns and reduced emissions from power and industry set the scene for declining EUA Prices, according to analysts at S&P Global Commodity Insights.

"The slowdown is broad-based affecting sectors like construction, manufacturing and services. We expect prices to hit the high Eur50/mt mark threshold in February," they said in a recent note.

Analysts at S&P Global expect 2024 average prices to plunge to Eur63.90/mtCO2e compared with Eur85.30/mtCO2e in 2023 and Eur81.50/mtCO2e in 2022.

Climate politics

The recent price slump suggests that market participants are adding more weight to long term market fundamentals than on "the political narrative," a Brussels-based emissions trader said.

"Prices falling below Eur60/mtCO2e serves as a measure and metaphorical proxy to understand how secondary climatic political ambitions are developing in the eyes of market participants when it comes to defining what a fair value for EUAs is in the short-term," he said.

This EUA price plunge came despite the announcement of ambitious climate targets for the EU. On Feb. 6, the European Commission proposed the EU to reduce emissions by 90% by 2040 as part of its broader climate goals.

This target is part of the bloc's European Green Deal, which also calls for the EU to cut its greenhouse gas emissions by at least 55% by 2030 compared with 1990 and reach net zero emissions by 2050.

Many analysts and companies insist that to achieve this goal, stronger policies are required.

"The European Commission's proposal of a 2040 carbon reduction target is just the start of a long road to firm policy that will be decided by the next EU Commission and Parliament, to be formed after June's elections," analysts at S&P Global said. "It is clear that policy certainty is more important than ever for those looking to realize Europe's ambition on decarbonization."