Price for CO2 emissions exceeds 100 euro per tonne

Posted on 2 Mar 2023

On Tuesday, February 22, 2023, companies under the European Emissions Trading System (ETS) had to pay more than 100 euros for one tonne of CO2 emissions for the first time. European companies have never had to pay more for their CO2 emissions. The high price is a symbolic milestone for the ETS, one of Europe's main tools to achieve its climate goals and become carbon-neutral by 2050.

The European Emissions Trading System (ETS) sets a limit on the emissions of more than 10,000 industrial installations, power producers, and airlines, which together account for about 40% of total emissions in the EU. This limit is gradually lowered. Companies that want to emit more than allowed must buy emission allowances. The price of these allowances increases as demand increases.

Price of emission allowances rising rapidly

There has been criticism of the ETS for years because emission allowances were too cheap and companies were not sufficiently encouraged to green their operations and move away from fossil fuels. However, in recent years, the prices of emission allowances have risen rapidly. The price is now about four times higher than at the beginning of 2020 and more than twelve times higher than at the beginning of 2018. The main cause of the price increase is the increasingly strict climate policy in Europe.

At the end of last year, the European Parliament, the Commission, and the member states agreed to remove free allowances from the market more quickly and expand the system for aviation and shipping. The price increase is a consequence of this. Emission allowances will only become more expensive in the future. Companies must purchase all emission allowances by April 2023 to cover their emissions from the past year.

More emission allowances sold with little wind

This trend is reinforced by the fact that colder weather with little wind is predicted in the coming weeks. This means that the production of wind turbines will be limited and power producers using fossil fuels (who, unlike industry, do not receive free emission allowances) will need to buy additional emission allowances. It also doesn't help that Europe had to ramp up its coal-fired power plants last year to make up for the shortage of Russian natural gas. Coal-fired power plants produce electricity in the most CO2-intensive way, which means they also need more emission allowances.

Decreasing competitiveness of European industry?

For the time being, there seems to be no end in sight to the price increase of emission allowances under the ETS. Exceeding the threshold of 100 euros will, on the one hand, encourage companies to switch to low-carbon energy sources more quickly, but, on the other hand, it could provide new arguments to opponents of the ETS. The European industry, which already faces historically high energy prices, fears that they will lose even more competitiveness on the world market. European politicians support the European industry in their desire to slow down the rapidly rising CO2 price.

Source: De Standaard

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