[Carbon Emission Allowance Surge] Up 23% This Year, Breaking 40 Euros for the First Time... Companies on High Alert

[Asia Economy Reporter Park Byung-hee] The European Union (EU) carbon emission allowance price has continued its steep rise since the beginning of the new year, surpassing 40 euros per ton for the first time ever. The EU operates the world's largest carbon emission trading market. The EU carbon emission allowance price also influences domestic carbon emission allowance prices, raising concerns that companies' environmental cost burdens will increase.

According to major foreign media, the EU carbon emission allowance price exceeded 40 euros per ton for the first time on the 11th. On that day, the carbon emission allowance futures price traded on the ICE Futures Exchange surged to 40.12 euros per ton in early trading, surpassing 40 euros for the first time since its launch in 2005. Considering that the closing price at the end of last year was 32.59 euros, this represents a 23.1% increase in less than two months this year. On the 12th, the carbon emission allowance price closed at 39.97 euros per ton.

The EU carbon emission allowance price, which rose 32.9% last year alone, is gaining even more momentum this year. This is due to the EU adopting more stringent greenhouse gas reduction targets in December last year, followed by the inauguration of U.S. President Joe Biden, who declared climate change response as one of the seven major national policy tasks. Market participants expect the carbon emission allowance price to maintain a strong long-term trend as greenhouse gas reduction becomes a global issue.

Attention is focused on whether the rise in the EU carbon emission allowance price will lead to an increase in domestic carbon emission allowance prices in the future. Domestic carbon emission allowance prices started trading at around 8,000 won per ton in 2015 and rose to about 40,000 won per ton by the end of 2019. After price adjustments, it is currently trading around 19,000 won per ton. Domestic companies are facing a double burden of investment costs for reducing carbon emissions and the cost of purchasing carbon emission allowances. According to the government's 2050 carbon neutrality plan, the costs that the three domestic industries?steel, petrochemicals, and cement?will have to bear are estimated to reach 400 trillion won.