The price of CO2 is rising fast – topping $54 a ton in Europes’ emissions trading scheme this month, almost double the price at the start of the year. Andurand Capital Management’s Casey Dwyer told Bloomberg he expects the European carbon price to reach €100 this year, saying “We’re very confident the price-path forward is up.” Previously such a price was considered years or even decades away.
A global carbon market is emerging that treats emissions-avoidance as a commodity like any other. Now global commodity traders such as Trafigura have carbon trading desks, and speculation is emerging as a potent factor. As the prospect of $100 a ton carbon comes into view, hedge funds are now busy raising funds to corner carbon while prices are low.
$100 a ton carbon could be very helpful for acclerating the decarbonisation transition. For example, for scaling negative-emissions technology such as direct air capture, which needs a high price to be viable. However this new market dynamism and volatility will have many systemic effects, some unexpected and disruptive.
ImpactAlpha predicts that a carbon price of $100 a ton “will drive a disruption of massive proportions, from the fate of ExxonMobil to the profits of Midwest farmers.” The carbon price is a critical planning tool for companies – but few have planned for so steep a rise, so quickly. Meanwhile farmers who sell carbon offsets could be incentivised to delay their sales to get a higher price.
Will the price of carbon supplant the price of oil as the key commodity to watch?