How did IETA get its carbon price prediction so wrong?

You might expect the 137 companies in membership of the International Emissions Trading Association (IETA) to have the most accurate knowledge of how the European carbon trading system is likely to perform year-on-year. After all, the Association was formed back when the EU:ETS began 16 years ago, still easily the world’s biggest carbon market, to impact upon electricity generators. And has up until now included practically every major player in the market.

So, when polled last June, what was the collected wisdom of the 137 specialist companies about the likely traded price of carbon a year hence? A tonne of carbon had been trading at around 15 euros in April 2020. But had moved up to 25 euros by June.  

Knowing all about the changes being made to the marketplace by the new European Union Green Deal initiatives, the professional sages collectively forecast that, over the next decade, the average price of a tonne of carbon might well leap up to as much as 32 euros. In other words, back to the price it was originally traded at when launched back in 2005.

That is okay, concluded all the large electricity consuming companies involved, we can budget for that expectation.  

Consequently, the realisation that, already during 2021, the carbon price has doubled and is now well over 50 euros per tonne, has left many industrialists gobsmacked. A spokesperson for the European steel industry, Eurofer, is warning that higher carbon costs are squeezing out steelmakers’ ability to invest in carbon reduction technologies.  

But now members of the IETA have reversed their 2020 position, with many reckoning that reforms to the carbon market will end up doubling prices again.  

All of which is mighty welcome for the many new speculative financial investors that have been entering this hitherto esoteric market, buying up but then hoarding carbon emission allowances. And so, forcing the trading price ever exponentially upwards. Watch this space.