EU carbon price hits record high nearing 100 euros/tonne

By Susanna Twidale

LONDON (Reuters) - The benchmark European carbon contract hit a record high approaching 100 euros a tonne on Monday, with cooler weather forecasts and expectations of lower wind power output driving up demand.

The benchmark EU Allowance (EUA) December 2023 contract closed at 98.30 euros a tonne, up 2.1% since Friday's close and having earlier touched a record high of 99.99 euros tonne.

EUAs are the main currency used in the European Union's Emissions Trading System (ETS) which forces manufacturers, power companies and airlines to pay for each tonne of carbon dioxide they emit as part of the bloc's efforts to meet its climate targets.

Traders said cooler temperatures combined with lower wind speeds means there is likely to be more demand for power from Europe’s fossil fuel-powered plants which need to buy carbon permits to cover their emissions.

“Temperatures in Northern Europe are actually now forecasted to go below seasonal averages next week, which might instigate utilities to increase their hedging activities,” said Gregory Idil, a senior carbon emissions trader at Vertis.

The benchmark contract has risen almost 20% since the beginning of the year, partly on expectations that Europe's economies could start to improve as energy prices fall from record highs.

Speculative buying has also helped to push prices up this year, traders said.

Visibility, however, on positions taken by financial institutions has shrunk since the ICE exchange, which is one of the main trading platforms for emissions, has been unable to publish Commitment of Traders (COT) data this month due to technical issues.

In an update posted on its website on Friday, ICE said it "aims to publish the files as soon as possible, subject to confirming the accuracy of the data."

Although the carbon contract failed to break the 100 euro mark on Monday, traders and analysts said this level could soon be breached.

“EUA price is showing strong momentum and could test the 100 euros/t level soon,” Refinitiv analyst Luyue Tan said in a daily research note.

(Reporting By Susanna Twidale; Editing by Marguerita Choy)