Carbon price hits €50 high as EU sets climate goals

The carbon price in the EU has reached record-breaking levels of €50 per tonne on Tuesday and is being seen as an essential step in helping the bloc to hit its climate targets.

The idea of the carbon price is to charge companies per tonne of carbon released into the atmosphere - particularly in some of the highest-polluting industries, such as aviation and cement.

Read more: EU to enshrine net-zero goals

The EU's carbon market is the primary driver for curbing carbon emissions and mandated that these high-risk sectors buy permits when they pollute.

The price has seen a 50% spike since the start of the year and as late as December was rarely traded above €30 a tonne.

However, forecasts for carbon allowances are expecting availability to drop, which has caused traders to surge the price.

Under the new guidelines, companies will be given a set allowance of carbon permits, designed to at least cover part of their emissions. Should they cut emissions to the point where they have leftover permits, they are free to sell them at a profit, the EU claims.

Brussels has already vowed to cut emissions by 50% by 2035, which was ratified on April 21. Its current goals are to be completely carbon-neutral by 2050, with the potential to enter net carbon-negativity in the years following.

This package is supposed to come into effect in the summer with policies aimed at slashing emissions across all sectors.

Read more: Construction begins on 4,000t carbon capture project in Iceland

There are concerns, however, about the price spikes exceeding the rate at which companies can adapt. Analysts have alerted the public that these could bring untold costs onto consumers as companies being fined look to cut losses.

"Climate policy will only get tighter over time as scale of the challenge becomes clearer and as the burden on future generations and their freedom becomes increasingly unacceptable," Mark Lewis, an analyst for BNP Paribas tweeted.

"The rational response is, therefore, to significantly tighten 2030 targets ASAP," he added.

Analysts are saying the price needs to jump to a point to trigger CO2 cuts in EU industry, where there are concerns low-carbon alternatives may not operate at the same competitive levels as the fossil-fuel-based mainline.

There have also been calls to introduce carbon border adjustment taxes for imports outside the bloc, over fears that they were being put at a disadvantage.

The FT reports that Europe's steel sector would face carbon costs of up to €2 billion a year at current levels.

It is likely the EU's targets will only get more stringent as time goes on. Therefore, it is imperative that high-risk sectors find ways to innovate before they are faced with heavy costs.

Read more: How industrial innovation can drive the European Green Deal

Industries such as cement or shipping, both of which rely on carbon generation in order to function, may rely on carbon capture technology to bring emissions down.

This may require significant upfront costs but is likely to be a worthwhile long-term investment.

Carbon capture is something of a fledgeling industry, but industrial innovations over the decade may make it more prevalent.

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