CO2 prices crashing along with Corona virus impacts

March 19, 2020Espen Andreassen

CO2 prices have crashed significantly lately. Since early March, the EUA Dec-20 price has decreased from 24 €/t to 15 €/t. We consider coronavirus concerns the major reason for the price crash.

Escalating concerns inducing macroeconomic fears affect the demand side of EU ETS, with less industrial process emissions and power demand. This adds to a situation where the European industrial trends were already very weak, and where recognized forecasting institutes already predicted limited EU GDP growth prospects ahead of the European virus outbreak.

A crisis of this magnitude will affect Europe’s power consumption, as well as process emissions from industry sectors. We now forecast 2020 emissions to drop by 150 Mt relative to forecasted 2019 levels.


At the same time, we have also observed hard coal to gas fuel switching prices collapsing further. For cal-21, our calculated hard coal to gas fuel switching price has dropped from 15 €/t to 7 €/t in a matter of only two weeks. This probably still has an impact in short term EUA pricing, however, it is to be emphasized that the hard coal to gas fuel switching potential is quite limited, and hence the impact on emissions from further decreases in switching prices should be limited as well.

It is also worth to mention that seen over the course of this year, mid-March should be considered the most bearish time of this year regardless of the coronavirus. This is due to fresh EUA supply arising from suspended British auctions and free allocations being distributed, as well as awareness of the collapse of verified emissions for 2019 should be surfacing nowadays. In early April, verified emissions for EU ETS are to be unveiled. We forecast final 2019 emissions from stationary installations to have fallen by 146 Mt relative to 2018 level, hence an 8.7% year-on-year decrease.

Considering factors affecting prices nowadays, we also acknowledge the possibility of financial non-compliance players getting out of their positions and industrial surplus holders selling off to raise quick cash.

Our EUA price prognosis on a four weeks ahead basis is now at 17 €/t. The ongoing panic may lead to recovery taking some time.

Our expectation to price for delivery in December 2020 is adjusted down to 20 €/t. The major reason for this moderate increase, relative to a recent market price of 15 €/t, is that we expect prices by December to reflect more bullish long term supply-side developments. EU lawmakers are set to negotiate on a high GHG reduction target than the current 40%, which will have implications for the supply side in EU ETS.

However, we expect lawmaking processes of going for a more ambitious 2030 climate target may take more time than previously assumed, hence serving as a less bullish medium term price signal than assumed earlier.