Carbon prices to continue escalating: Fitch

Carbon prices in the EU are set to continue rising further in the coming years, mainly impacting the domestic metals industry, as the EU plans to further cut annual free carbon allocations, Fitch Ratings says.

As part of the “Fit for 55” package presented by the European Commission, carbon allocations are expected to be cut annually by 4.2%, instead of the 2.2% annual cut currently in place. This acceleration of free allocation cuts is set to bring prices to a new record, after the recent high of almost €58/tonne ($68) touched earlier this year.

In June a survey by the International Emissions Trading Association reported that members expected EU Emissions Trading System (ETS) prices to average at some €47/t in the 2021-2025 period. These would then increase further to over €58/t in 2026-2030. This survey did not however take into consideration the further cut in free allowances announced in July.

“The European steel sector faces over €50 billion in capex by 2030 to achieve emission-reduction targets, according to Eurofer. It will also incur high carbon costs at least until 2026 when the CBAM is in effect, and experience quicker free allocation cancellation. The proposal also means higher energy costs for European producers,” Fitch says in a report sent to Kallanish.

In addition to lower ETS allowances, the EU is set to introduce a Carbon Border Adjustment Mechanism (CBAM) from 2026. Most analysts, including Fitch, believe the announcement was made mainly to spur EU commercial partners to consider their own carbon trading system, in order to avoid being impacted by CBAM taxes after they become official.

Emanuele Norsa Italy