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DJ Carbon Hits Record Highs on Speculative Action, Winter Weather

· 02/05/2021 06:12

By David Hodari

Credits tied to carbon emissions have hit fresh record highs this week on a combination of speculative action and seasonal demand for heating.

The price of carbon credits, used by European governments to slash greenhouse gases and traded by hedge funds, have jumped 16% so far this week. They were last up 2.4% on the Intercontinental Exchange at EUR38.15 a ton of carbon dioxide emitted--equivalent to $45.68, having hit record highs earlier in the day.

"Positive sentiment on the financial markets, the retreat of short sellers [and] extremely optimistic price forecasts from some analysts and hedge funds," have helped push prices higher, with the market moving "in line with the old adage of 'boom nourishes boom'," says Eugen Weinberg, head of commodities research at Commerzbank.

Carbon's recent climb (https://www.wsj.com/articles/carbon-prices-jump-despite-record-drop-in-emissions-11608814801) follows a period of increased winter demand for natural gas, with cold weather in Asia and a lack of available storage sending buyers from the region piling into the market, according to Trevor Sikorski, head of natural gas and energy transition research at consulting firm Energy Aspects.

Higher gas prices should spur electricity generators to switch to cheaper, dirtier coal. But because coal releases twice as much carbon as gas, power plants need more credits to use it, boosting carbon credit prices. Still, gas prices have softened in recent days as that demand has eased.

With seasonal and speculative factors--rather than supply and demand fundamentals--behind carbon's rise, prices should fall in the short term, analysts say.

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February 05, 2021 06:12 ET (11:12 GMT)

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