The price of carbon is up

I keep an eye on the power markets. They are a window into the future. You can see the powerful forces that are reshaping the energy system.

The price of gas skyrocketed at the start of last year. Thankfully, the fear of acute shortages has passed. Prices have been falling. They are settling down but not to where they were. For example, gas for next winter is trading at 127p per therm, more than double what we thought of as normal.

But the story isn’t over. When energy supplies were tight, we muddled through by burning more coal than usual. It burns dirty. The extra emissions have made carbon allowances - a carbon dioxide permit - scarce. So prices have been climbing. But unlike gas, carbon prices aren’t coming down.

In 2020 carbon was around £20-25 per tonne. Today it’s £70.72 and the markets suggest it will continue rising. Belching out a tonne of carbon at the tail end of 2025 costs £85.25, up 4 fold.

Renewables were getting price competitive before Russia’s war in Ukraine. With gas prices staying high, and carbon turning the screw, it’s not much of a contest anymore.

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