European carbon prices fall amid competitiveness concerns

European carbon prices fell by 25% since mid-January to below €70 amid growing competitiveness concerns from European leaders. EU carbon prices were on a bullish trend since last summer, rising by around 30%.

This strong growth was driven by expectations of tightening market fundamentals:

(1) more allowances placed into the Market Stability Reserve;
(2) phase-out of free aviation allowances;
(3) cancellation of some maritime allowances; and
(4) gradual phase-out of CBAM sector allowances.

This bullish trend was broken after carbon prices soared to over €90, while top European leaders started to raise competitiveness concerns. This included comments from Italy, Germany and the Czech Republic ahead of last week’s EU competitiveness summit.

In particular, there are growing concerns surrounding the role of financial speculation. Lower carbon prices are generally bearish for TTF, although the correlation between the two weakened significantly in recent years and was actually negative last year.

What is your view? How will carbon prices evolve this year? Could we see a recovery from the recent fall? And what is the future of carbon pricing in Europe? What could be its impact on European competitiveness?

Source: Greg MOLNAR