The coronavirus makes emissions fall, but also the price of CO ₂

The CO2 emissions market has also fallen victim to the coronavirus. On March 23, the price of the emission rights that are assigned to European industrial facilities, known as the USA, lost 15 euros per ton. They are almost ten euros less than just 13 days before, when the carbon price began to plummet due to the global expansion of Covid-19.

“It is a decline similar to that suffered by other energy commodities, such as oil, natural gas and electricity,” says Iker Larrea, partner and director of the markets area of Factor Trading. Larrea attributes the fall to “very volatile sessions”, in which “certain financial actors decide or are forced to close their positions in the face of the forecast of a fall in industrial demand”.

Changes

In the previous crisis, the price of the US fell significantly

But the price has quickly regained some of the lost ground. After touching year-on-year lows on March 23, the US has risen to close to 18 euros. “They have become a safe haven in the face of the general fall in investment markets,” argues Ismael Romeo, of the company specialized in the sale of emission rights Sendeco2. In Romeo’s opinion, otherwise the price would oscillate around 12 euros.

Going back to the previous economic crisis gives us an idea of the possible behavior of these values in times of lean cows. From the collapse of Lehman Brothers in September 2008 to February 2009, the US went from €25 to €8 a tonne, before stabilizing between €13 and €16 for the rest of 2009 and throughout 2010.

At the end of 2011, given the prospects of a relapse of the economy, the price fell to 6-7 euros. Seeing how the US behaved in the previous economic crisis, “it is to be expected that its price will continue to fall in the coming weeks,” Romeo predicts.

How does this new situation affect industrial installations subject to the European emissions trading directive (power plants, paper mills, refineries, steel mills, cement companies…)? “Loss-making companies, which are the vast majority, will have a lower cost per ton emitted,” says Larrea. It is also true that many of them will see their emissions reduced, due to the stoppage or decrease in their activity as a result of Covid-19, so they will need fewer rights.

Impact

Contributing to global warming will be cheaper

Lower prices mean that contributing to global warming will be cheaper, but Romeo dismisses that, “in the short term, this discourages investments to reduce emissions.” If the period of low CO2 emissions is extended, “the market would self-regulate to adjust supply with demand and cause a rise in prices,” says Larrea.

“The emission allowance market is designed to help the European Union meet its international commitments in the fight against climate change and has mechanisms to reduce the amount of supply as demand falls,” explains the partner and director of the markets area of Factor Trading.

Source: The Vanguard