The Covid-19 pandemic has turned Europe’s carbon price upside down, with prices dropping by 40% since early March when they were still trading at about €24 ($26) per metric ton, analyst IHS Markit said.
The current trading levels of between €16-18 per metric ton are roughly two thirds of the level of the high of 2019 of €29 per metric ton.
“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,” said IHS Markit director Coralie Laurencin.
The EU’s emission trading system (ETS) is one of Europe’ main instruments to convince energy-intensive industries and the power sector to switch to a less polluting production. A rise in prices last year has, for example, led to the switch off of several coal-fired power stations across the continent, and given incentives to turn to renewable energy sources.
The drivers of the price collapse in the ETS according to the analyst firm are a reduced economic activity and power demand, as well as lower aviation demand that will lead to lower 2020 emissions across Europe.