The price of emission allowances at an all-time high (€ 70 per tonne) as Europe burns coal

Europe is increasingly dependent on coal to keep its lights and heaters on, driving polluting prices to a record high.

Prices have exceeded 70 euros for the first time in history as utility companies turn to the most “dirty” of fossil fuels. Power plants in the UK have been burning more coal since the beginning of the month to keep electricity supply to households amid a colder-than-expected period, but also below-zero temperatures in major UK cities this week.

Europe is facing an energy crisis as its economies recover from a pandemic and people return to their offices. This intensifies the demand for electricity, at a time when supply is limited. Years of limited investment in fossil fuels have combined with unexpectedly low wind speeds this year, pushing gas, electricity and pollution rights to historic highs, leading to the bankruptcy of a range of energy providers, Bloomberg reports.

With gas shortages leading to a quadrupling of its price by 2021, traders expect to burn more coal this year – and that means more pollution licenses. At the same time, the European Union has launched its climate ambitions, pledging to reduce its pollutant emissions at a faster rate this decade. This practically means that the price of emission allowances will increase faster.

“The curve of our current shift from gas to coal shows that Europe will burn coal at least until March 2023, thus increasing CO2 emissions,” ClearBlue Markets analysts said in a statement.

The December emission allowance benchmark earlier earned about 1.5% at a record high of 70.43 euros per tonne, falling to 70 euros just before 3pm Greek time in Amsterdam. Prices have more than doubled during the year. BloombergNEF expects emission allowances by 2030 to have reached 100 euros per metric ton.

These rights have also been boosted by COP26’s recent decision in Scotland to create a global emission allowance market in an effort to tackle global warming.

The EU Securities and Exchange Commission (ESMA) last week rejected concerns about opportunistic investor speculation in the prices of emissions allowances.

Rights prices continued to rise despite the fall of gas for a second consecutive day, due to concerns that more EU countries are leading to a lockdown due to the new rise of Covid-19.

Weather forecasts also look positive, with the current wave of cold seeming to last less than originally expected. The expected increase in energy supply from wind farms within days also has a decompressive effect on gas prices.

Natural gas in Europe was falling today by up to 6.3%, to 81.68 euros per megawatt hour, while natural gas was falling by 6.2% in London. European gas prices rallied 15% last week, following a decision by German authorities to temporarily suspend the licensing process of the Russian-German pipeline Nord Stream 2.