(Montel) European carbon prices are likely to reach an average price of EUR 30/t by 2020 but could drop back below EUR 20/t in mid-2020s, an analyst from Bloomberg New Energy Finance (BNEF) said on Tuesday.
“Price could drop in 2026-27 for three reasons: additional supply coming to the market in 2026; the drop of market stability reserve withdrawal rate from 24% to 12% in 2024; and lower emissions due to coal phase outs around 2025 and renewable growth in 2023-2025,” he added.
In the long term, however, CO2 prices are likely to stabilise around EUR 30/t from 2030 onwards, Olsen said.
European carbon prices have more than quadrupled over the past 12 months ahead of the planned market reform in January 2019, surpassing EUR 25/t in September. The benchmark was trading around EUR 21.50/t on Tuesday.
However, there has been little impact on the European power production mix and fuel switching so far despite the price hike, according to Olsen.
“The reason for that is that every time the CO2 [price] goes up, the price needed to make gas plants competitive with coal plants increases, so carbon has been chasing its own fuel-switching price,” he said, adding this was mainly because the European gas market has been very tight.
“But this is a temporary situation that could change as early as next year and gas plants will be the first to benefit from higher carbon prices,” he said.