become cheerier about the pace of vaccinations and the chances of a speedy economic recovery, the prices of stocks, commodities and all sorts of assets are rising. So too are carbon prices in Europe, home to the world’s largest emissions-trading system. Prices have surged by 60% since November; on February 12th they hit a record high of nearly €40 per tonne of carbon-dioxide equivalent .
It is an odd market. The commission auctions allowances nearly every day; it caps the overall supply of permits based on the’s politically determined emissions targets. Demand, meanwhile, comes from three types of participant. Power and heating utilities, such as Germany’sand France’s Engie, have the most appetite. They buy allowances to cover the emissions from current projects or to hedge against future price increases. Next come industrial firms, such as ArcelorMittal, a steelmaker.
The expectation of higher carbon prices may have prompted industrial firms to start hedging their emissions early this year. That added to demand for allowances—as did unusually cold weather, which boosted the demand for heating . Speculators may have accelerated the price rise, by buoying futures prices. Around 230 investment funds hold futures linked to allowances, up from 140 in 2019. They account for only about 5% of the futures market, but it is a growing, bullish share.
Carbon credits are just like the indulgences Martin Luther protested when nailing his “95 Thesis” to the church door… only now it’s catholic Pope Francis nailing his “Encyclical Letter LAUDATO SI’” to the web.
good luck