Manufacturers are alarmed by the surge in the price of CO2 quotas

How far will the soaring carbon allowance prices go? The question is of increasing concern to manufacturers, in France and in Europe.

Since the start of the year, the price of a tonne of CO2 has increased by nearly 50% to pass the symbolic bar of 50 euros this Tuesday for the first time in session. However, until last December, the prices of these rights to pollute were negotiated at minus 30 euros per tonne.

Soaring electricity prices

If Fatih Birol, the president of the International Energy Agency (IEA), is delighted, believing that it is an “excellent” signal to accelerate the energy transition, manufacturers, for their part, are ringing the bell. alarm. Because, with the gradual decrease in free quotas, most of them have to pay “pollution rights” which have become more expensive. In addition, the rise in CO2 prices is also boosting electricity prices, which weigh heavily on the production costs of certain steel or cement producers.

“These costs reduce the investment capacity of industrialists in the decarbonization of their manufacturing processes,” said Nicolas de Warren, president of the Union of energy-using industries (Uniden), which brings together major energy consumers in France (PSA, Renault, ArcelorMittal, Arkema, etc.).

In fact, even at 50 euros per tonne, the price of carbon remains far too low to achieve the objective of carbon neutrality set by the Paris Agreement. “More than the price itself, it is an excessively rapid increase that could hamper manufacturers,” says Marcus Ferdinand, carbon and energy specialist at ICIS.

Especially for Uniden, the surge in prices on the CO2 market has little industrial basis: “Demand for electricity and economic activity have not returned to their pre-crisis level and the hardening of the objective of reducing CO2 emissions announced by the European Union by 2030 was known, ”points out Nicolas de Warren.

In December, the announcement of the new objective of reducing the Union’s emissions by 55% by 2030 compared to 1990, however largely contributed to the rise in carbon prices. The European Union must review the functioning of the market in June and the number of allowances is set to decrease significantly, which will automatically increase the price per tonne of CO2. Bloomberg analysts now estimate that it should exceed 100 euros in 2030.

Suspecting “intense speculation”, Uniden has, according to our information, seized the Financial Markets Authority and the Energy Regulatory Commission to shed light on possible “fraudulent transactions”, as indicated the association in its letters to both institutions.

Tighter emission reduction targets

Uniden explains that around a hundred new institutional investors have entered the CO2 market since the beginning of January. Their bet? Take advantage of the rise in the prices of polluting allowances which will become more and more valuable. This speculation, while providing liquidity, makes the market very volatile.

Within CRE, we do not comment on any possible market manipulation because it is the FCA and BaFin in Germany which are competent in the matter, but we are also worried about the surge in prices. “The next regulated electricity tariffs will have to take into account these CO2 price levels and in fine, this risks being a brutal additional cost for the consumer”, recalls a source within the institution.

In this context, to preserve the competitiveness of French industry and avoid the leakage of carbon emissions outside its borders, Uniden pleads for the next French presidency of the Union to put this subject on its agenda.

“We should limit the number of quotas available to non-industrial players,” said Nicolas de Warren. At ArcelorMittal, we are also relying on the promise of a border carbon adjustment mechanism (MACF). “There is an urgent need for a mechanism which applies carbon criteria to all steel producers who sell in Europe”.

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