Europe's carbon price approaches 100 euro milestone

Known as the EU emissions trading system (ETS), Europe's carbon market forces factories, power plants and airlines to pay for every tonne of CO2 they emit – the higher the permit price, the higher the cost of producing planet-warming emissions, some of which are global remains cost competitive in markets.

The carbon price has increased by more than 200% since the start of 2021 due to factors such as rising gas prices, which has caused some electricity producers to switch to coal, higher emissions and permit demand.

The benchmark EU carbon permit contract rose as high as €97.50 per tonne on Friday and ended the day at €96.43, the highest close since the start of the carbon market launched in 2005.

Analysts said the latest increase was most likely due to technical purchases and could reach 100 euros – a level also suggested by the high amount of open interest on CO2 options contracts at the same price.

"The next target will be the magic three-digit number of 100 euros/tonne," Refinitiv analysts said. Said.

The upward march of European carbon costs emerged last year when EU policymakers announced a series of new laws to reduce emissions faster by 2030 – including a market reform that analysts hope to push CO2 prices higher.

Refinitiv said a €100 carbon cost could overshadow the political debate over these policies and the EU's target to reduce emissions by 55% from 1990 levels by 2030.

Countries including Poland said high CO2 prices were driven by speculators and urged the EU to intervene in the market. Other states view a robust carbon price as crucial to meeting climate targets, and pointed to the EU securities watchdog's recent assessment that there was no evidence of abuse in the ETS.

By putting a price on pollution, the EU ETS gives companies a financial incentive to reduce emissions and invest in green technologies. The price has remained low for years given the large upfront investment required to scale green technologies in industries such as cement and steelmaking.

At a CO2 price of €100, industry estimates suggest that carbon capture and storage technology could be cost-effective in applications including refineries – but other technologies, such as hydrogen produced from renewable energy, will still need higher CO2 costs.