The Carbon Collapse in Europe

The events unfolding in the Ukraine and sanctions on Russia have created sentiment across the board – even in the carbon sector.

Many are fearful of the potential economic fall-out of the Ukraine invasion and also a decline in overall industrial demand.

Typically, spiking gas and power prices would also increase the price of carbon.

As higher natural gas price encourages some power generators to switch to cheaper and dirtier coal. Coal emits upwards of double the emissions of natural gas, so this should increase the demand for carbon permits – in theory.

Some are speculating that some participants are offloading their EUA positions to cover losses elsewhere.

Before Russia’s invasion of Ukraine, the EU carbon price was near an all-time high of close to 100 Euros, this followed a record 2021.

Analysts at Engie EnergyScan noted that the “fundamentals of the market, i.e., its increasing tightness, are not changed by the crisis and the current prices could be considered as attractive”

Some speculators may be in a holding pattern in regards to entering the market again and are likely waiting for a resolution to the conflict. But the overall macro view of the carbon sector still remains strong.

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