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How Much Would You Pay for a Tonne of Carbon?

April 2021

Market Summary

Short and long-term electricity and gas prices remain on a bullish trend. As the UK is expecting warmer weather going into May/June we predict renewable electricity generation to increase which will ease pressure from the grid and reduce prices. Concerns have been raised over the effectiveness of existing renewable generation assets selling carbon credits to the members of the EU ETS scheme. If this option is removed it would cut the supply of carbon credits which will result in an increase in the carbon market.

Carbon has been on an upward trend since the beginning of the month causing the price (Euro per tonne) to reach the mid €40’s. As local lockdowns ease and the hospitality sector is opening across the UK and parts of Europe, analysts are predicting that CO2 emissions will jump from 1.5bn tonnes to 33bn tonnes this year, the largest annual rise since 2010.

The UK has recently withdrawn from the EU ETS scheme as a result of Brexit to create the UK ETS scheme. Analysts are eager to see how aggressive the UK’s scheme compares to the EU’s and how it will affect carbon prices going forward.

Electricity Market

Renewables such as solar and wind have been generating less than the seasonal norm due to the cold weather snap in the UK and Asia. This has put pressure on the grid and pushed commodity prices up for Summer 2021(S21). We have seen Winter 2021 (W21) prices hit new highs of £70MWh which we have not seen since “The Beast from the East” literally took the UK by storm in 2018.

Gas Market

Aramco based in Saudi Arabia is one of the largest oil producers in the world. They have built a risk premium into their price following an attack on their sites from militia groups which has been felt globally.

The recent closing of the Suez Canal owing to a stuck ship caused catastrophic losses and LNG tanker delays on route to Europe creating further price inflation. Low renewable energy generation in Q1 resulted in the UK using generators to produce enough power to flow through the grid which has also increased summer 2021 (S21) and winter 2021 (W21) prices.


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