Europe’s natural gas prices rose again on Monday with the price of carbon remaining high – despite efforts to reduce emissions.
It comes as new data from the EU has underlined the climate crisis, showing that the last seven years were globally the warmest on record – by a clear margin.
Copernicus Climate Change Service also said in its annual findings that global concentrations of carbon dioxide and – very substantially – methane continued to increase.
Rising cost of carbon
It comes as the European price of carbon rose to around €87 ($98) a tonne at the beginning of this year – almost matching the record €90 level it reached in December as EU gas prices surged again.
As a result of the rising price of gas, the burning of CO2-emitting coal has increased, which in turn has required more carbon permits, pushing up prices on the carbon market.
This is one of the reasons why some traders and analysts think the price of carbon will rise to €100 a tonne.
Jump in price
The managing partner of London-based hedge fund Northlander, Ulf Ek, is among those who expect the carbon price to keep gaining this year – and told Bloomberg it could jump above €100 by the end of winter and to €140-€160 later in the year.
“Our expectation of price in 2022 for carbon emissions is decidedly bullish,” Ek wrote in a letter to investors. “Carbon emissions still need to go higher for Europe to meet its targets,” Ek said.
Berenberg analyst, Lawson Steel, told Reuters that he had expected carbon to reach €110 a tonne by the end of last year.
Meanwhile, analysts at Trading Economics expect EU carbon permits to trade at €69.05 by the end of this quarter and estimate them to trade at €83.74 in 12 months’ time.
Putting a price on carbon
The European Union’s emissions trading system (EU ETS) requires companies to pay for each tonne of carbon dioxide they emit and is central to its efforts to cut net greenhouse gas emissions by 55% from 1990 levels by 2030.
The system, first introduced in 2005, allows regulated entities to buy or receive emissions allowances, which they can then trade with one another.
At the end of each year, the companies can then surrender allowances to cover all of their emissions. It means those carrying out carbon-emitting activities bear the cost of doing so.
“The ultimate aim of the market, then, is to lower the amount of CO2 that is ultimately emitted into the atmosphere, with a higher carbon price ostensibly incentivising a shift towards greener technologies,” International Banker explained.
Driving the price of carbon
Analysts at Refinitiv also noted that as countries raise their climate ambitions, and global greenhouse gas emissions are increasingly accounted for, the fundamentals driving carbon markets will change.
“More ambitious climate change targets have led to emissions trading becoming an ever more important policy instrument in delivering emissions reductions,” the company said.
Refinitiv also noted that “carbon pricing is a complex interplay of near-term and long-term supply-demand balance, fuel prices, macro-economic trends, and policy and regulatory developments”.
EU climate data
The rising cost of carbon comes as the EU released its latest climate data on Monday, revealing that the past seven years have been the hottest on record.
“Within these seven years, 2021 ranks among the cooler years, alongside 2015 and 2018. Meanwhile, Europe experienced its warmest summer on record, though close to previous warmest summers in 2010 and 2018,” the report said.
“Preliminary analysis of satellite measurements confirm that atmospheric greenhouse gas concentrations continued to rise during 2021, with carbon dioxide (CO2) levels reaching an annual global column-averaged record of approximately 414ppm (parts per million), and methane (CH4) an annual record of approximately 1,876ppb (parts per billion),” the report also highlighted.
It was also noted that carbon emissions from wildfires worldwide amounted overall to 1,850 megatonnes, especially fuelled by fires in Siberia.
Mauro Facchini, head of Earth Observation at the Directorate General for Defence Industry and Space, European Commission, commented on the report.
“Europe’s commitment to respond to the Paris agreement can only be achieved through effective analysis of climate information. The Copernicus Climate Change Service provides an essential global resource through operational, high-quality information about the state of our climate that is instrumental for both climate mitigation and adaptation policies. The 2021 analysis, showing that globally the warmest years by far were recorded in the last seven years, is a reminder of the continued increase in global temperatures and the urgent necessity to act.”
Carlo Buontempo, director of the Copernicus Climate Change Service, added that the events are a stark reminder of the need to change our ways – and take decisive and effective steps toward a sustainable society, and work towards reducing net carbon emissions.
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.