Gas prices jumped 17% after the German regulator suspended certification yesterday for the Nord Stream 2. Meanwhile, CO2 certificate prices increased as well. Both items, gas and CO2 certificates, are traded as commodities on the futures market; whereas gas has some limited elasticity, as producers can react to increased demand with more supplies, the CO2 market is rigid: as demand increases due to cold temperatures, for instance, producers seek CO2 certificates, but the supply cannot be increased. CO2 allowances are established by the EU Commission, which sets an overall cap for the EU, with allowances then allocated to EU members. Reducing the cap, as the EU did this year, automatically drives the prices up.
“EU CO2 prices hit a record €66/metric ton (mt) on Nov. 15, the first trading day after the UN Climate Change Conference and amid rising fuel prices driven by a cold weather forecast and gas supply fears resurfacing,” S&P Trading reports. EU allowances closed at €65.93/mt, up 4% from Nov. 12 for the December 2021 contract.
High gas prices drive more suppliers to bankruptcy. Two more small suppliers—Neon Reef and Social Energy Supply, with a combined 35,000 customers—collapsed after the price hike in the U.K. Remaining suppliers are transferring costs to households. Electricity bills have increased in some cases 100%, Bild reports for Germany. Similar cases are reported in Italy.
Thus, gas and electricity prices cannot be stabilized unless two key measures are taken: 1. exclude non-commercial traders from spot and future markets; 2. even more important, shut down the EU Emission Trading System.
