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What is the EUA price forecast for 2030? Surveys and expert forecasts point towards an increase in carbon prices.
What is the EUA price forecast for 2030? Surveys with forecasts point towards an increase in prices, but the extent of this rise will depend on several factors. For instance, industrial production’s effects are important for carbon prices. If manufacturing activity rebounds fast, the demand for EUAs from both compliance and financial entities will promptly drive prices upward. Also, everyone will monitor the dynamics of the gas markets in Europe. Geopolitical events and EUA prices are correlated. Anything that happens in the world impacting gas prices is also seen through carbon markets fluctuations. Although the energy crisis may currently seem to be over (or almost), there remains the possibility of new surges in gas prices, which would also put upward pressure on carbon prices. Finally, we know that supply levels will be reduced rapidly after 2025 and 2026 following the regulatory RepowerEU balancing - this will result in higher CO2 prices.
As discussed in previous articles, carbon allowance prices are driven by a variety of factors. Energy markets are significant because they influence industrial energy consumption, which in turn affects carbon emissions levels and so the anticipated demand for allowances. Weather conditions also play a role; for instance, milder winters result in reduced heating needs, leading to lower emissions and subsequently decreased demand for EUAs. The views and behavior of participants in the carbon allowances market, industrial activity levels, and regulatory announcements also all contribute to shaping carbon prices.
Carbon emission allowance prices began 2024 at €78.02 but experienced a decline during the first weeks of the year, plummeting to €50.65 by the end of February. However, there was a beginning of a reversal in CO2 prices after that, with prices starting to recover and reaching figures around €60 in March.
Carbon allowance prices have characteristics similar to those of commodities, and fluctuations such as the one described above are typical and to be expected. So, having a very short-term investment timeline is often not appropriate for individual investors in carbon allowances. For instance, if an investor had purchased EUAs in December with the intention of holding them for only a month, they would have incurred a loss of more than 34% due to the price decline observed in January and February.
Emissions allowances are designed for price appreciation. As a policy instrument, their increasing prices generate more revenue for member states to allocate towards green projects and drive up the incentive for industries to cut their carbon emissions. So, over the long term, EUA prices are meant to rise. This makes them a favorable medium to long-term investment - CO2 allowance investment with a 2030 time horizon appears reasonable.
What is the EU ETS price forecast for 2024?
2024 is a good time to invest in carbon markets. In March 2024, the carbon allowance price was around €55, with analysts anticipating an average rise to €70.55 by year-end (22% increase). Different carbon analysts announce forecasts ranging from €61.95 to €82, all going to the upside.
The EU industry has experienced muted activity since the start of the conflict in Ukraine and has yet to fully rebound. Reduced manufacturing activity translates to decreased energy consumption and fewer emissions are being released. So, there is a reduced demand for EUAs, which negatively impacts prices. For example, investment funds have been selling more allowances than what they have been buying. They have had a “net short” positioning for 33 consecutive weeks now. This interplay between industrial activity, energy consumption, emissions, and EUA demand shows that carbon markets are sensitive to broader economic and geopolitical events.
Should industrial activity resume more rapidly, we anticipate a swift increase in EUA price levels by the end of 2024 and beyond, boosting their trajectory towards higher levels leading up to 2030. In an optimistic scenario, prices could potentially reach €80 by the year's end. The resumption of industrial activity would result in an increased compliance demand for EUAs. This need will be complemented by financial investment buyers of carbon allowances. These investors would recognize the anticipated rise in demand from compliance buyers and act preemptively to purchase EUAs before prices escalate further. So, this will result in a simultaneous demand from both compliance and financial investment buyers, driving carbon prices upwards by at least 20%.
Gas prices have an influence on carbon prices, there has been a very strong correlation between the two recently. When gas prices rise, industries tend to increase their usage of coal, resulting in higher pollution levels and a greater need for EUAs to offset their emissions. Over the past few months, the correlation between gas prices and carbon allowance prices has ranged between 0.6 and 0.9.
Analysts at Goldman Sachs say that while the current gas supply is ample and prices are declining post-energy crisis amid mild weather, the crisis may not be entirely resolved. They argue that another winter must end before the risk of extreme gas price spikes gets really reduced. There is a structural deficit in European natural gas, and it is possible that increased LNG supply hasn't fully compensated for the foregone Russian imports. European gas prices remain vulnerable to supply disruptions or surges in demand, especially during winter. They are currently between €25 and €30, but can rapidly surge back to above €50.
There is still the possibility of a gas price surge which could drive up emissions allowances prices from 2025 to 2030. This phenomenon will impact trading behaviors too, especially if there is the possibility of a shift back to coal from gas. This can rapidly bring EUA allowances prices to up to €70 and €80 in 2024, and more than €150 by 2030.
The RepowerEU package, a response to the energy crisis triggered by the war in Ukraine, prompted regulators to intervene in the supply dynamics in EUA markets. Carbon allowance volumes were "taken away from the future carbon budget" and are currently being introduced in addition to the usual supply quantities. This adjustment has been the primary factor driving the decline in EUA prices over recent months.
Given that the current additional supply was “taken away” from future carbon budgets, it will logically be compensated by a sharp reduction in supply levels after 2025. Consequently, the gap between demand and supply is expected to narrow, leading to a tightening of the market and an expected increase in prices after 2026 to more than €80 and €90.
According to a recent survey of major carbon expert analysts, the average forecast for a 2030 carbon allowance price is €140, representing a 57% increase compared to the current price. The highest forecast for 2030 stands at €157, indicating a 161% increase compared to the current price, while the lowest forecast is €78, representing a 30% increase compared to the current price.
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