Ben Laidler, global markets strategist at trading and investment platform eToro. Laidler analyzes the fall in the price of carbon permits from the European ETS due to “low demand and greater supply!” “This is a setback for decarbonization incentives and adds to the pessimism of the sector, from Tesla to renewable reserves. However, most of these excesses are cyclical and a regulatory restriction on supply and demand is looming,” he points out.
CARBON: The price of European ETS carbon permits has plummeted, as the global standard-bearer for carbon pricing faces a perfect storm of weak demand and increased supply. Demand is affected by the European industrial recession, mild weather, falling natural gas prices and increasing renewable energy capacity, with a small boost from the maritime industry. Meanwhile, the 244 million auctions of EU fundraising permits represent an excess of supply. This is a setback for decarbonization incentives and adds to the pessimism of the sector, from Tesla to renewable reserves. However, most of these excesses are cyclical and a regulatory squeeze on supply and demand is looming.
ETS: The European capping emissions trading system covers approximately 40% of EU emissions and is being expanded, which will ultimately provide a floor for ETS prices, with the plan The EU's "fit for 55" approved last June, to reduce emissions by 55% compared to 1990 levels by 2030. This plan includes 1) cutting supply by increasing the annual decrease in the limit to 2.2% and phasing out free fees by 2034. 2) Increase demand by adding shipping to the ETS this year, and buildings and transport in 2027. 3) Introduce stricter limits for electricity and aviation. 4) Progressive introduction of an EU border carbon tax from 2026, which effectively globalizes the ETS market given Europe's role as the largest export market for 80 countries.
WORLDWIDE: Nearly a quarter of global CO2 emissions are already covered by carbon pricing initiatives in 39 countries, according to the World Bank. China's regime, introduced in 2021, is the largest in the world, covering almost 10% of all global emissions. The EU regime is the second largest, covering more than 4% of global emissions and is the most negotiated ($800 billion last year). It has been operating since 2005, making it the oldest. Its ETS remains well above other markets, such as California and the United Kingdom, which are also included in the KRBN Global Carbon ETF. The European ETS generated an estimated revenue of $42 billion in 2023, which is returned to governments to invest in climate measures.
