NN IP: EU emissions allowance prices set to rise

NN IP: EU emissions allowance prices set to rise

Energietransitie
CO2.jpg

The prices of European Union Allowances (EUAs) on the EU’s Emissions Trading System (ETS) are set to rise over the medium term, according to NN Investment Partners (NN IP).

The ETS legally caps the greenhouse gas emissions of around 11,000 power and manufacturing installations and aviation operators while permitting them to buy and trade allowances. Regulated entities must pay an excess emissions penalty of EUR 100 for each tonne of CO2 emitted for which no allowance has been surrendered.

Key demand drivers based on the new proposals of the European Commission include a reduction in the cap of allowances to align them with the revised targets, an expansion of the list of sectors covered by the ETS with shipping; free allocation of EUAs being gradually replaced by auctioning for aviation and for key industrial sectors with the introduction of the Carbon Border Adjustment Mechanism; tighter pollution rules increasing the cost of emitting greenhouse gases in the EU; and economic recovery post the COVID-19 pandemic leading to higher emissions.

Koen Straetmans, Senior Strategist Multi-Asset, NN Investment Partners: “In the near to medium term, EUA prices will have to rise to reach marginal cost of emission abatement and enforce decarbonisation.”

NN IP is considering carbon allowances for inclusion in multi-asset portfolios and sees opportunities for impact investors. Read more in the recent Insight by Koen Straetmans.