Sign up to receive free updates on Carbon trading.
We will send you a myFT Daily Digest email with the latest Carbon trading news every morning.
A hedge fund manager, once bullish on carbon permits, predicts a tumble in their price as Europe shifts away from dirty fuels. Per Lekander, who successfully predicted the 2018 rally in carbon prices, believes that as natural gas and coal prices fall, the demand for carbon credits will also decrease. The price of carbon permits reached a record high of €100 a tonne in February but is expected to decline with the transition to cleaner energy sources.
European Union (EU) carbon credits currently trade at about €86, a 430% increase from five years ago. Lekander plans to close his short position if prices hit €60. It is mandatory for companies in the EU operating in the gas, coal power generation, and industrial manufacturing sectors to purchase carbon credits. Last year, the total value of EU carbon credits traded was €751bn.
Russia’s natural gas supply cuts to Europe, coupled with Europe’s support for Ukraine, led to a surge in coal usage, resulting in the record-high carbon permit prices. However, Lekander believes that Europe’s efforts to lower emissions have accelerated the shift to cleaner energy sources, reducing the demand for fossil fuels and carbon credits. Wind and solar energy surpassed gas in contributing to the EU’s electricity needs in 2021.
Lekander anticipates that Europe’s abundant gas storage will eliminate the need for coal during the upcoming winter. With European gas storage facilities already 80% full, he expects both gas and coal prices to decrease.
Europe’s energy crisis caused a decline in gas prices, making coal less appealing for electricity generation due to its higher carbon dioxide emissions. Lekander predicts that Europe will refill its gas storage in August, causing both gas and coal prices to plummet.
Lekander’s hedge fund, with $1.8bn in assets, invests in energy company shares and commodities. He is betting on the outperformance of publicly listed green energy companies and expects non-renewable energy groups to struggle in the coming months and years. Lekander is particularly interested in US companies following the passing of the Inflation Reduction Act, which provides significant subsidies and investments in renewable energy projects.
Climate Capital
Explore the FT’s coverage on the intersection of climate change, business, markets, and politics.
Learn more about our science-based targets and FT’s environmental sustainability commitments here.
Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
