Thursday 9 April 2020

Europe’s carbon market crashes amid coronavirus crisis

Coronavirus has caused Europe's carbon market to crash, with prices dropping by up to €9 9 (£7.9) per metric ton.

IHS Markit notes the market is currently trading between €16 (£14) per metric ton and €18 (£15.7) per metric ton, down by around 40% since early March when prices were trading at about €24 (£21) per metric ton and roughly two-thirds of the €29 (£25.3) per metric ton that marked 2019's high point.

It suggests this collapse has been driven by three main factors - weakening fundamentals as reduced economic activity, power demand and aviation activity leads to lower emissions across Europe, weakening oil prices and bearish financial markets.

Coralie Laurencin, Director of IHS Markit, said: "This is a perfect storm for Europe’s carbon market and it may well lead to some challenging questions about its role in Europe’s decarbonisation strategy once the Covid-19 crisis has passed."

The Market Stability Reserve (MSR) could bring the market back into balance in 2021 by removing 24% of excess annually, which amounts to 400 million metric tons this year - future price forecasts range from an average of €12.6 (£11) per metric ton during second quarter-fourth quarter 2020 to as little as a €5 (£4.4) per metric ton average over the same period.