Carbon price tumbles as investors fret over ‘weak’ impact of COP28 deal

The price of carbon fell to its lowest level in 14 months on Thursday after traders were unconvinced that the agreement struck at the COP28 summit would lead to meaningful action by governments on the climate.

Futures contracts tracking the EU’s emissions trading scheme, the world’s largest carbon trading market, briefly slumped as much as 4 per cent to below €66 per tonne of carbon emissions in London.

The fall, to its lowest level since October 2022, compared with €71 before talks started and extended the declines of the week when a draft agreement emerged that had dropped references to the phasing out of fossil fuels.

The final deal agreed on Wednesday in Dubai by almost 200 countries recognised the need to transition away from all fossil fuels to reach net zero emissions globally by 2050 for the first time.

Yan Qin, lead carbon analyst at the London Stock Exchange Group, said the “weak” language in the Dubai agreement, and failure to agree on plans for carbon trading between states, both contributed to the fall.

“It’s the weakest of all the weak [language],” Qin said in reference to non-binding language in the deal brokered by the United Arab Emirates this week, which called on countries to “contribute” to the transition.

This fell short of demands by some countries including small-island states for a more forceful deal on ending oil, gas and coal production. 

Carbon prices had been under pressure in recent months as a mild winter has left the EU’s gas stockpiles high.

Other analysts said there were few links between the agreement and the EU carbon price. Roman Kramarchuk, head of future energy analytics at S&P Global Commodity Insights, said policy changes linked to COP28 were “inherently a long-term story”. The ETS price was more influenced by the gas the EU had been able to store, mild weather and weak economic growth in the region.

The climate summit yielded a mixed bag of results that left some observers outside of the carbon markets torn between acknowledging the historic nature of the deal brokered by COP28 president Sultan al-Jaber, chief executive of the UAE’s national oil company, and pointing out that it did not go far enough.

“It was a fossil fuel COP in different ways,” said Lili Fuhr, director of the fossil economy programme at the Center for International Environmental Law. “It was hosted by a petrostate, headed by an oil executive, but really put fossil fuels at the heart of the conversation [for the first time].”

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