Cambie Bridge, Vancouver at high Tide

Predicting the Price of European Carbon in December 2021

President Joe Biden has wasted no time in winding back the damage done by his predecessor. On day one of his four-year term, Biden is taking the US back into the Paris Agreement and has carbon reduction in his sights, including axing the Keystone XL pipeline.

There are reasons to be cautiously optimistic: the U.S. is back. The hope is that with a more climate-friendly President at the helm of the world’s largest economy, climate action worldwide may now accelerate.

Carbon trading on the European Union’s Emissions Trading Scheme surged into new territory in late 2020 in spite of the global pandemic and burst higher again in early January. Biden’s win and Trudeau’s announcement of a $170 carbon tax by 2030 no doubt provided added impetus.

So what does 2021 hold in store for the price of EU carbon, the oldest and biggest carbon market in the world?

Before I give you my December 2021 prediction, I have to round off last year. In January 2020, as well as giving the December 2020 EUA settlement price for the EUAPredict competition, I predicted a year high of €33.19. In the end, the EUA price traded as high as €33.50 (around C$50) in 2020. Not quite the bullseye, but about as close as you could hope to get, given how volatile the market can be. I used a combination of technical analysis and assumptions about political will to form my opinion.

Here’s that original prediction again:

As Alessandro Vitelli (aka @CarbonReporter), who runs the #EUAPredict competition on Twitter, said, now I have to do it again.

Since I’m in Canada, I find myself comparing the difference in carbon pricing between what Europeans and Canadians pay. I know it’s a fairly spurious connection to make, but as I wrote in my last post, BC’s carbon price predicted the December 2020 EUA at settlement with uncanny accuracy.

My EUA Prediction for 2021 follows in that vein, although I’m predicting the European carbon price stays ahead of BC and Canada and settles on 20th December at €39.97 (about C$62.50 at 4th January exchange rate).

This year the competition attracted a total of 105 dart-throwers. It turns out I’m fairly near the centre of the range of predictions. The average price prediction is €41.53, the median is €40.10.

The highest price at €110 anticipates sudden, strong climate action and the lowest a depression-like €19 per tonne of CO2.

I challenged Andrew Weaver (former BC Green Party leader and subject of my film Running On Climate) to try his hand at #EUAPredict.

He bit.

He’s gone for a more conservative prediction than me of €36.33 (about C$56.80 on 4th January 2021). That’d place it roughly $10 ahead of BC’s 2021 carbon price ($45). Or $5 ahead of the Canadian carbon price from April 2022.

Interesting to note that in the 2017 election campaign, Weaver’s BC Greens campaigned for a $70 price on carbon by 2021. It was the BC Green’s most successful election. They won three seats and the balance of power in the legislature.

Under the Confidence and Supply Agreement, that the three Greens negotiated with the minority NDP government, the BC carbon tax was to rise $5 a year from 2018. It had remained frozen at $30 per tonne since July 2012 thanks to Christy Clark’s BC Liberal government.

If it had continued rising uninterrupted (it didn’t), by April 2022 it would be at $55. Roughly where Weaver has placed his #EUAPredict pin.

Is BC’s GreenDP carbon price going to anticipate the price of EU carbon again? We’ll find out at the end of the year.