The EU decided long ago that if it wanted to reduce pollution effectively, it had to put a price on carbon, and over time that price had to increase. Some of the world’s largest oil traders and hedge funds managers now seem to believe it. Over the past four months, the price of European carbon allowances – marketable securities that dictate how much it costs power plants and industry in Europe to emit a tonne of carbon dioxide – has climbed to a record high above 30 €. In turn, they have increased the cost of pollution for companies such as electric utilities and will soon do so for manufacturers of products like cement and steel. For veterans of the niche carbon market industry, created 15 years ago, the price hike didn’t make sense. Coronavirus lockdowns and the resulting deep global recession reduce emissions in Europe because factories have slowed down and demand for electricity has plummeted. According to them, prices should go down, not go up. But the market is changing, attracting a new breed of traders who care less about short-term factors such as market oversupply this year. Instead, they see an opportunity to cash in on a market whose direction will ultimately be dictated by policy and support for a “green recovery” from the pandemic.
FT 23rd Aug 2020 read more »
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