Does the price of carbon dioxide endanger the economy?

“The market does not listen to reasons right now. It is impossible to predict what will happen”, says Ismael Romeo, from the company specializing in the sale of emission rights Sendeco2. Romeo refers to the price of what is known as the EUA: carbon dioxide emission rights (CO₂ ), mandatory for those companies ¬whose¬ activities are subject to the European emission rights trading system (power plants that run on fossil fuels, energy-intensive companies such as refineries, steel or cement factories, or airlines that operate in Europe).

Since the start of the covid pandemic, the price has multiplied almost fourfold, going from around 20 euros to pointing at 80 euros. Only in the last month, coinciding with the celebration of COP26, the increase has been close to 35%. “There are temporary reasons to explain this big increase, such as the increase in the price of oil and gas, but the most determining factor is speculation,” explains Romeo. “At the slightest excuse, investors cause increases in the price and, without excuse, it simply stays, but does not go down”, summarizes the person in charge of Sendeco2.

Impact

The price of CO ₂ is one of the reasons why the price of electricity rises

“Since 2015, when the Paris Agreement was signed, it was known that the price would rise radically,” warns José Lindo, from Climate Trade, a company specializing in offsetting carbon emissions. But the rise is being even more radical than expected. “At that time, several experts established that the price of CO ₂ should be over 100 euros in 2030 to meet the climate objectives set,” explains Lindo. Today, with nine years to go by 2030, the price already points to 80 euros, although it is true that the new calculations estimate that the target price for a decade from now should be between 130 and 140 euros due to delays on climate action.

The objective of the emission rights market is to push the companies that emit the most CO ₂ to invest in the development and implementation of solutions to reduce their emissions. “Current prices make technologies that weren’t profitable until now and, as a consequence, companies are much more receptive when it comes to implementing innovations,” says the Climate Trade expert. However, the rapid rise in CO2 is also putting companies in trouble and making such investments difficult.

“These are prices that many industries can no longer pay, which can force relocations and even closures,” warns Romeo. Lindo agrees, who warns “of the loss of competitiveness that this entails for the economy” and of “possible labor conflicts”. The Spanish Association of Manufacturers of Ceramic Tiles and Pavements (Ascer) has just published a statement complaining about the impact of the “unstoppable” boom in the price of CO₂ , “whose costs have increased by more than 100% compared to the average of the previous year”, with “harmful effects on companies”. The current prices of CO ₂ are also behind the high prices of the electricity market.

Goals

The European Union has proposed to reduce its emissions by 55% in 2030

What can we expect in the coming weeks? Lindo is confident that peaks are being reached and that the market will end up stabilizing between 55 and 65 euros, in line with the 60 euros proposed as the floor price by Germany. Prices that are still three times higher than those at the start of the pandemic. If the upward trend continues, Lindo does not rule out that the European Commission will end up intervening “to avoid serious economic problems.”

Source: The Vanguard