Warmer than expected fall, lower energy consumption bring down carbon price

A gas hob.
A gas hob. Source: Priit Mürk/ERR

The price of carbon dioxide on the European Union Emissions Trading System (EU ETS) has fallen by nearly one fifth from its record high in mid-August thanks to a warmer than expected fall and lower energy consumption, experts told ERR.

After reaching a record €98.01 per ton of carbon dioxide on the EU ETS in mid-August, carbon prices dipped down to the €65-70 range in mid-September before rising again in the latter half of October and now reaching the €75-80 range per ton.

According to Imre Banyasz, an adviser at the Climate Department of the Ministry of the Environment, August's record high price was the result of a combination of several factors.

"On one hand, high [natural] gas prices, which also resulted in record high electricity prices," he cited. "More polluting production units thus accessed the market, which in turn, however, emit more greenhouse gases and thus these production units require more [emission] units."

Baltic Energy Partners OÜ partner Marko Allikson likewise cited markets' expectations for greater use of fossil fuels as the reason behind the late summer price increase.

Marko Allikson. Source: Ken Mürk/ERR

"The price of carbon quotas reached this year's peak in August, as Europe's emissions market lived with the knowledge that the large-scale deployment of more polluting fossil fuel-based methods of electricity production would be needed to replace Russian gas, and there were no clear signs yet of consumption dropping off," Allikson explained.

Weather, EU debate helped bring prices down

Natural gas and electricity prices both peaked in August, however, which led to a reduction in energy consumption as well as the threat of an economic recession, both of which mean lower demand for carbon quotas, the BEP partner continued.

According to Allikson, the price increase triggered active discussion in the EU on issues surrounding keeping prices in check, due to which speculative positions on the market in which traders expected further price increases were liquidated. "The price has likewise been driven down by a warm fall and the beginning of winter, which has also reduced the need for carbon quotas," he added.

Banyasz likewise highlighted that the market reacted to discussions to begin in the EU in late August in which ways to prevent high energy prices were discussed, where likewise under consideration in addition to the regulation of natural gas prices and taxation of excess profits was a proposal by Poland to limit carbon prices.

"Discussions that states may intervene in the market somehow had traders cautious," he said. "Intervention in the ETS nonetheless did not find support."

The price of carbon dioxide has begun to fall following these debates, as renewable energy throughput rose while the price of natural gas fell, the ministry official explained.

"Fall in Europe was relatively warm as well, thus reducing the demand for energy," he continued. "This likewise reduced demand for [emission] units."

Rein Vaks. Source: Laura Raudnagel/ERR

Rein Vaks, head of energy markets at the Ministry of Economic Affairs and Communications, cited three factors to cause the price of carbon to drop. Firstly, winter is not off to as harsh of a start as forecast, due to which demand for energy carriers has been lower than expected.

Second, high fossil fuel prices have forced consumers to reduce their consumption thereof, he continued. All of this has ultimately reduced demand for fossil energy carriers and thus in turn the need to purchase carbon quotas as well.

"It's a market like any other!" Vaks told ERR.


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Editor: Aili Vahtla

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