We are pleased to present Aurora’s new strategic insight report, Valuing Carbon: Long-term outlook for carbon price formation and implications for the power sector. The report presents our findings on the latest policy and market updates in the energy sector and their implications for the power sector in the coming years.
Key messages to arise from our analysis are:
- The EU ETS was introduced as part of the EU Climate Change package to encourage fuel switching and investment in low carbon technologies through a stable carbon price signal.
- Price of EUAs has risen to a 10-year high due to upcoming Phase IV reforms, rise in gas prices, a European-wide heatwave, a change in trading strategies by large generators and more active management of EUAs by small industry players.
- Aurora forecasts the price of EUAs to average €26/tCO2 over Phase IV, with ~500Mt of allowances banked for Phase V.
- Price evolution of EUAs will critically depend on fuel prices and national policies of Member States. Tightening the ETS cap is effective in phasing out coal while more ambitious national policies alone are unlikely to deliver 55% emissions cut.
- Uncertainty over future GB carbon prices raises significant questions for market participants. Reducing the carbon price from current levels could undermine the Government’s target to phase out coal by 2025.
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