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Carbon prices may exceed EUR 30/t next year – UBS


05 Dec 2019 12:46




05 Dec 2019 12:46

(Montel) European carbon prices have room to rise above EUR 30/t next year mostly based on psychology more than fundamental reasons, UBS analyst Sam Arie said in a note published on Thursday.

“Overall, we believe the carbon scheme is still not structurally tight but instead trades heavily on perceived, psychological anchor points,” Arie said, adding the most important “anchor” might be the price the market believed politicians would tolerate in the future.

While recently political acceptance seemed to have agreed on a price of around EUR 30/t, rising concerns about climate change could see this rise to “EUR 30-40/t, which means there could be upside to the CO2 price in 2020”.

Many experts believe carbon needed to be priced around EUR 40/t to promote full decarbonisation.

In 2019, EUAs had traded in a EUR 20-30/t range, he said, which was below the bank’s expected trading range of EUR 25-35/t, mainly due to the lower gas price – which has promoted coal to gas switching – and insecurity surrounding the fate of UK EUAs amid the country’s plans to leave the EU.

Brexit concerns
This means that once Brexit uncertainties had been resolved and if gas prices recovered ground the price outlook for carbon would also improve from a fundamental point of view next year, he added.

The Dec 19 EUA contract last traded at EUR 24.40/t on London-based Ice Futures, down EUR 0.34 day on day.

The contract dropped as low as EUR 18.40/t in February and rose to a 13-year high at EUR 29.95/t in July. So far, closing prices have averaged EUR 24.88/t this year.

Analysts have told Montel they expected carbon to trade range-bound until greater clarity emerges from the UK following a general election next Thursday that should determine the fate of the government’s contested plans to exit the EU.

A no-deal Brexit is thought bearish for CO2 as it could lead to a flood of unused UK EUAs onto the ETS.

On the gas market, the TTF front-month, Europe’s most liquid gas contract, last stood at EUR 15.60/MWh, down EUR 0.20 from Wednesday’s close, and 34% below where the equivalent front month stood a year ago.

Earlier this week, Montel reported Morgan Stanley saw carbon prices remaining relatively flat next year at EUR 25/t. The tighter northern European power market would then combine with carbon market reforms to send prices to 37/t by 2022 before allowance prices softened again, said the US investment bank.

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