EU carbon prices hit record Eur66/mt amid cold snap, COP26 aftermath

EU CO2 prices hit a record Eur66/mt on Nov. 15, the first trading day after the UN Climate Change Conference and amid rising fuel prices driven by a cold weather forecast and gas supply fears resurfacing.

The price of EU carbon dioxide allowances (EUAs) under the EU Emissions Trading System (ETS) closed at Eur65.93/mt, up 4% from Nov. 12 for the Dec. 2021 contract, ICE data show.

The contract traded as high as Eur66.97/mt late in the session after trading around Eur65/mt for most of the day. The primary auction for 2.5155 million EUAs on EEX settled at Eur64.40/mt in the morning.

European gas prices ended the day above Eur80/mt, up 7% from where S&P Global Platts assessed the December TTF contract on Nov.12. Year-ahead coal into Europe was up only 2% at $104.75/mt, Platts data show.

Temperatures across Northern Europe were forecast to dip below seasonal norms in the final week of November.

More near-term, a lull in wind boosted power prices but wind across Northwest Europe was forecast to surge from Nov. 17 again deflating spot power prices and reducing demand for gas in the power sector.

Overall, low gas storage across Europe, strong global demand for LNG and reduced flows from Russia via Ukraine over recent months have lifted gas prices to record highs.

Current TTF levels are still below October's peaks after some reassurances from Russia, but higher demand for fossil generation by power or heat plants covered under the ETS boosts demand for EUAs.

Coal-fired generation margins are still ahead of gas-fired margins, Platts data show.

Waves of coal plant closures across Western Europe however have reduced the volume for gas-to-coal switching with EUAs less driven by gas and coal price swings over recent months.

EUAs doubled in value between Nov. 2020 and May 2021 to Eur56.65/mt by May 14, but since only gained another 20% while TTF gas prices more than tripled since May.

Platts generation cost data indicate that a Eur1/MWh gain for gas is similar to a Eur5.40/mt rise for CO2 in terms of its impact on average generation costs for a gas-fired power plant.

For the month-ahead, the indicator dropped from peaks above Eur200/MWh in October to around Eur152/MWh on Nov.12, Platts data show.