EU carbon values under pressure on recession, demand worries

Sentiment in the European carbon price market remained bearish in the week to Feb. 2 amid muted demand. Traders and analysts have said they expect prices to remain around Eur60-65/mtCO2e in the coming week, with macroeconomic concerns and reduced power generation dominating headlines.

EU Allowances under the bloc’s Emissions Trading System were trading at Eur63.22/mtCO2e at 1038 GMT on Feb. 2 compared with Eur63.58/mtCO2e on Jan. 26.

Platts, part of S&P Global Commodity Insights, assessed EUA contracts for December delivery at Eur62.19/mtCO2e on Feb. 1.

Many analysts have downwardly revised their EUA price forecast for 2024 due to recession concerns and reduced emissions from the power and industrial sectors.

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.

“EUA prices are expected to decline further due to the expectation of a technical recession despite a resilient labor market,” they said in a recent note. “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.”


Climate reforms

On Feb. 6, the European Commission is likely to recommend that the EU commit to a 90% reduction in emissions by 2040, which could provide some relief to declining prices.

This target is being backed by several EU countries, but climate policies have become heavily politicized recently, with farmers across Europe currently protesting against costly clean energy regulations.

But many policymakers, analysts and climate scientists insist that the EU must commit to this if it has any realistic chance of reaching net zero by 2050.

The European Council has set a goal for the EU to cut its greenhouse gas emissions by at least 55% by 2030, compared with 1990, and become climate neutral by 2050.

Meanwhile, the inclusion of the maritime sector in the EU ETS, opens up a new set of buyers for EUAs.

The European Commission published a document Jan. 31 attributing each shipping company to an EU member state to help these companies register for EU ETS compliance.

Shipping companies can now open holding accounts to trade EUAs and manage their ETS exposure.

Under the EU ETS guidelines, shipping companies must surrender their first ETS allowances by Sept. 30, 2025, for emissions reported in 2024.

The EU has also agreed on a phase-in period to give the industry some preparation time, with the ETS covering 40% of the emissions in 2024, 70% in 2025 and 100% from 2026 onward.

The shipping sector’s inclusion is projected to add emissions of 90 million mtCO2e this year, which is around two-thirds of the sector’s emissions.


CBAM extension

Meanwhile, the European Commission extended has the period for declarants to submit their quarterly reports under the Carbon Border Adjustment Mechanism by 30 days from the original deadline, after a significant number of importers experienced technical issues that led to some businesses being unable to make submissions.

The new carbon border tax entered into application in a transitional phase Oct. 1, with the first reporting period for importers originally set to end Jan. 31.

CBAM essentially levies a tax on imports of selected carbon intensive materials and products (including aluminum, cement, electricity, fertilizers, hydrogen, iron and steel) into the EU, removing the gap between the EU ETS carbon price and the export country of origin’s carbon price.

The main purpose of the tax is to reduce the risk of carbon leakage — as a result of EU industries locating abroad — and encourage importer nations to introduce their own carbon markets and, so, limit CBAM impacts on their traded goods.

No penalties will be imposed on reporting declarants experiencing difficulties in submitting their first CBAM report, the commission said.

“While the system has been working well in previous days with data and many reports being submitted successfully, technical teams are working around the clock to rectify remaining issues,” the EC said.

The commission has encouraged those reporting declarants that do not encounter any major technical issues to submit their CBAM report by the end of the reporting period.

Author: Eklavya Gupte,